The macroeconomic implications of zero growth: a post-Keynesian approach

Eckhard Hein and Valeria Jimenez
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Valeria Jimenez: N/A

European Journal of Economics and Economic Policies: Intervention, 2022, vol. 19, issue 1, 41-60

Abstract: This paper tries to clarify some important aspects of the zero-growth discussion, in particular the consistency of stable zero growth with positive profits and a positive real interest rate. Starting from an accounting perspective, the authors analyse the implications of zero growth and clarify the stability conditions of such an economy. This is complemented with a monetary circuit approach – which, like any model, has to respect the national income and financial accounting conventions. The latter allows the authors to show that a stationary economy, that is, an economy with zero net investment, is compatible with positive profits and interest rates. They also argue that a stationary economy does not generate systemic financial instability, in the sense of rising or falling financial-assets– or financial-liabilities–income ratios, if the financial balances of each macroeconomic sector are zero. In order to analyse the dynamic stability of such an economy, they make use of an autonomous demand-led growth model driven by government expenditures. They show that a stable stationary state, with zero growth, positive profits and a positive interest rate, is possible in that model. However, the stable adjustment of government-expenditures–capital and government-debt–capital ratios to their long-run equilibrium values requires specific maxima for the propensity to consume out of wealth and for the rate of interest, assuming a balanced government budget and zero retained earnings of the firm sector.

Date: 2022
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Citations: View citations in EconPapers (6)

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Working Paper: The macroeconomic implications of zero growth: A post-Keynesian approach (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:elg:ejeepi:v:19:y:2022:i:1:p41-60

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