A new paper to assess Job Guarantee proposals in a SFC framework

Giuliano Toshiro Yajima’s paper “Beyond Job Guarantee: The Employer of Last Resort Program as a Tool to Promote the Energy Transition” has been published in the Review of Political Economy

Author:
Giuliano Toshiro Yajima, Levy Economics Institute of Bard College

Abstract
We argue that a careful design of a program of direct employment and public provision by the state can have permanent effects and promote the structural and environmental transformation of the economy. Starting from this point, we develop a multisectoral stock-flow consistent model to study the long-run effects of the implementation of a job guarantee program, both in the original formulation of Minsky and in its recent version put forward as part of the ‘Green New Deal’ (GND) policy package. We also assess the impact of both ‘green’ and ‘brown’ standard fiscal expenditures, as well as a policy mix including industrial, environmental and employment measures. Results from our simulations point out that, in order to pursue the twin targets of full employment and environmental sustainability, the government should invest in gross fixed capital formation while both reducing energy consumption and acting as an employer of last resort in order to absorb the workforce expelled from the energy sector.

The Employer of Last Resort Scheme and the Energy Transition: A Stock-Flow Consistent Analysis

Giuliano Toshiro Yajima has just published a new Levy Institute working paper: “The Employer of Last Resort Scheme and the Energy Transition: A Stock-Flow Consistent Analysis”

Abstract
The health and economic crises of 2020–21 have revived the debate on fiscal policy as a major tool for stabilization and meeting long-term goals. The massive surge in unemployment, due to the economic disruption of the lockdown measures, has increased the interest in policies that target employment directly instead of trying to achieve it via a general “demand push.” One of the proposals currently under debate is the job guarantee. Under such a policy the government would act as an “employer of last resort” by offering a job to everyone that is able and wants to work but cannot find a job in the private sector. This paper argues that a carefully designed scheme of direct employment and public provision by the state—addressing both the low- and high-skill workforce—can have permanent effects and promote the economy’s structural transformation, in particular by fostering energy transition and a lower carbon footprint. Starting from this point, a stock-flow consistent model is developed to study the long-run effect of the job guarantee’s implementation, inspired by the work of Godin (2013) and Sawyer and Passarella (2021).

Balance Sheet Effects of a Currency Devaluation: A Stock-Flow Consistent Framework for Mexico

Balance Sheet Effects of a Currency Devaluation: A Stock-Flow Consistent Framework for Mexico

by Lorenzo Nalin and Giuliano Toshiro Yajima
Levy Institute Working paper n.980, December 2020

Abstract
This working paper empirically and theoretically analyzes the exchange rate’s role in Mexico’s
development for the period 2004–19. We test the hypothesis of the re(emergence) of the balance
sheet effect due to an increase in external debt in the nonfinancial corporate sector; higher foreign
debt would affect private investment after episodes of real currency depreciation, in the spirit of the
literature put forward by Gertler, Gilchrist, and Natalucci (2007) and Céspedes, Chang, and Velasco
(2004). We build a stock-flow consistent (SFC) model, following the OPENFLEX model proposed
in Godley and Lavoie (2006), to explore the balance sheet implications from a theoretical
perspective. We simulate the 2014 fall in the Mexican peso generated by the drop in oil prices to
replicate stylized facts for Mexico for the period under investigation. The scenario analysis points to
a hysteresis effect of the real exchange rate (RER) depreciation on investment flows. That is, firms’
investment ratio does not completely recover from negative shocks in the currency.

New paper on Latin America

Lorenzo Nalin and Giuliano Toshiro Yajima (2019) Commodity Speculation and Exchange Rate Swings in Latin America: a Stock Flow Consistent (SFC) Analysis, Working Papers 13/19, Sapienza University of Rome, DISS.

Abstract
We are investigating the role of speculative agents during a commodity-boom period in a small-open, peripheral economy. Latin American countries (LAs) have a long history of speculative attacks, balance of payments crises, and currency devaluations. At the beginning of the 2000s, LAs experienced rising commodity prices and foreign investors shifted part of their portfolio composition towards their securities in search of short-term capital gains. Unlike past episodes, financialization has allowed international investors to have a wider range of financial instruments in which to invest. Apart from the traditional government bonds, new asset categories have appeared such as derivatives, exchange traded funds and structured notes. In order to replicate this macro-financial episode, this work will adopt a Stock Flow Consistent (SFC) framework. International real-financial connections are one of the main issues tackled by this methodology, as put forward in Godley (1999). The element of novelty of our contribution consists in depicting a speculative financial sector, which issues commodity-based assets (CBAs) to be sold to rentier households in the developed country. Comparative static exercises with different scenarios will be performed.

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