A post-Keynesian co-ordinated macroeconomic policy mix

Based on the model results of Chapter 5, a comprehensive post-Keynesian co-ordinated macroeconomic policy mix as an alternative to orthodox New Consensus Macroeconomics is presented in Chapter 6. In this alternative policy package, monetary policy should be aiming at stable distribution of income by targeting a long-term nominal (real) interest rate, which should not exceed trend nominal (real) GDP growth. Furthermore, central banks, together with legal regulation of financial institutions by governments, are responsible for the stability of the financial system, and the central bank has to act as a lender of last resort for the banking system and, in particular, as a guarantor of government debt. Nominal stabilisation, that is, stable inflation, should be tackled by income and wage policies, in particular through the mediation of distributional conflicts via wage bargaining co-ordination at the macroeconomic level. This would also contribute to stable income distribution. Real stabilisation and aggregate demand management, both in the short and in the long run, should be the task of fiscal policy, making use of government expenditures and government deficits/surpluses, following a 'functional finance' (Lerner) approach. Macroeconomic policies should be co-ordinated internationally, in order to avoid current account imbalances. Existing current account imbalances should be addressed symmetrically by deficit and surplus countries, and deficit countries should improve non-price competitiveness by means of industrial and regional policies.