The euro zone crisis: What would John Maynard do?

Arbeitspapier

In his letter to US President Franklin D. Roosevelt Keynes (1933) wrote about "the technique of recovery itself". An increase in output is brought about by an increase in purchasing power, Keynes argues, which can come from three sectors: households, firms and government. Using the IS/MY macroeconomic model developed by Ehnts (2014), which features sectoral balances and endogenous money, the situation of some euro zone members is examined with a focus on the three techniques of recovery: increases in debt of the respective sectors as defined by Keynes. A fourth technique, an increase in spending by the rest of the world, is added. The conclusion is that the policy recommendation given by Keynes in his letter also holds for the euro zone at present: a rise in debt-financed government expenditure. Some reform at the institutional level in Europe would enable "the technique of recovery" to work via the TARGET2 payment system, which is organized along Keynes' International Clearing Union proposal and a solid foundation to build on.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 72/2016

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: Keynes; Keynesian; Post-Keynesian ; Business Fluctuations; Cycles ; Fiscal Policy
• Subject: deficit spending ; fiscal policy ; sectoral balances ; Keynes ; Keynesian economics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ehnts, Dirk
• Event: Veröffentlichung
• (who): Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE)
• (where): Berlin
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/144818
• Last update: 10.03.2025, 11:45 AM CET