Empirical analysis of a post-Keynesian macroeconomic model of financial development

Conference Publication ResearchOnline@JCU
Chaiechi, Taha
Abstract

In recent studies the importance of financial markets has been highlighted and financial systems have been ascribed an increasing influence over real sector development. However, most of these discussions fail to adequately integrate this relationship into a general macro economic model. The argument put forward by Endogenous Growth theorists is mainly that an intermediation sector permits an economy to reduce the fraction of its savings held in the form of unproductive liquid assets; therefore financial intermediaries may naturally tend to alter the composition of investment and savings in a way that is favourable to capital accumulation and economic growth. On the other hand Post-Keynesian growth theories that have been formed from various strands found mainly in the writings of Keynes and Kalecki and stimulated by Harrod's approach which places more emphasis on income distribution, have tended to neglect the role of financial market development. The resulting macroeconomic models concentrate on the real side of the economy and pay little attention to the financial sector. This motivates the modelling strategy pursued in this paper along with some assumptions derived from the theory of financial intermediation for further investigation of the mainstream Keynesian/Post-Keynesian framework.

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11th Path to Full Employment / 16th National Unemployment Conference

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978-0-9806034-6-0

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25

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Newcastle, NSW, Australia

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Centre of Full Employment and Equity

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Callaghan, NSW, Australia

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