Post-Keynesian constant price macroeconomic models

Chapter 4 starts with a detailed explanation of the post-Keynesian horizontalist approach to interest, credit and money. Then several macroeconomic model versions with fixed prices are developed, starting with the basic model for a closed private economy. The effects of changes in model parameters, like firms' animal spirits, rentiers' propensity to save, the profit share and the rate of interest on equilibrium output and income are derived. It is shown that the model generates the paradox of thrift and a paradox of costs; aggregate demand is hence wage-led. Changes in the rate of interest or the stock of debt have no unique effects. In the next step, the government is explicitly introduced into the model and the roles of taxes, government expenditures and government budget deficits are discussed. Then, some open economy features are included, introducing exports and imports of goods and services and analysing the effects of exogenous changes in interest rates, income distribution and the nominal exchange rate. In the next step, wage inequality is integrated into a closed economy version of the model and the macroeconomic effects of relative income concerns in the consumption function are discussed. Finally, the focus is shifted to the short-run macroeconomics of gender pay gaps, both for a closed and an open economy model.