« Back to Results

Monetary Institutions and Policy in Secular Stagnation

Paper Session

Friday, Jan. 5, 2018 2:30 PM - 4:30 PM

Loews Philadelphia, Washington B
Hosted By: Association for Evolutionary Economics
  • Chair: Mario Seccareccia, University of Ottawa

Contemporary Stagnation and Marxism: Sweezy and Mattick

Riccardo Bellofiore
University of Bergamo


The paper considers the theory of crises proposed by Sweezy in his Theory of Capitalist Development, in his work with Baran on Monopoly Capital, and in his later papers on 'financialisation' in the Monthly Review. His interpretation, influenced by Schumpeter and Keynes, will be contrasted with the one by Paul Mattick as an 'orthodox' Marxist in Marx and Keynes. The conclusions will be different from the vulgata: (i) Sweezy's approach, though he stresses the inner tendency to stagnation, is not "stagnationist", and he is rather insisting on the forced periodically beating the tendency to stagnation; (2) Baran and Sweezy's Monopoly Capital can be interpreted as coherent with the Marxian labour theory of value; (3) the late Sweezy broke with many aspects of traditional Marxism exactly because he stressed the link between value theory, accumulation, exploitation, and the periodical counterdencies to stagnation; (4) his reading on Keynesianism is complementary rather than opposed to Mattick's views. An interpreter able to capture the complexity of Sweezy's thought was Claudio Napoleoni in his (unpublished) lectures in the early 1970s, which will be recalled in the article.

Banks, Carry Trade, and Stagnation

Mimoza Shabani
University of East London
Carmela D'Avino
University of East London


Protracted low interest rates are a feature of secular stagnation as observed in the recent years in US and Europe (Summers, 2016). The literature review provides evidence that liquidity flows to emerging countries can hinder the effectiveness of monetary policy aimed to combat stagnation (Bekaert et al 2007 amongst many). Liquidity flows haven been argued to be channelled mainly via financial markets contributing to local asset boom in high-growth countries. This paper attempts to establish the relative role of US banks in exploiting widening interest rate gaps with foreign countries in carry trade activities. Using a novel dataset contacting geographical segmented information on assets and liabilities of foreign branches of US banks, we investigate the existence of a carry trade channel, which materialises through internal capital markets. We use the Carry Trade Index available from Bloomberg (Bruno and Shin, 2015) with intent to explain credit boom in high growth countries and perpetuating stagnation in the US economy. The existence of an internal carry trade channel may have twofold far- reaching implication. From the US perspective internal liquidity outflows prevent the potential credit expansion that could otherwise be the remedy for a stagnant economy. For the foreign host county the potential subsequent increase in lending may hamper the ability of the domestic central banks to carry out its objectives.

High-frequency Trading, Liquidity Withdrawal, and the Breakdown of Conventions in Foreign Exchange Markets

Alexis Stenfors
University of Portsmouth


Conventions, or ‘that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change’ (Keynes, 1936), play a central role in over-the-counter markets. For instance, by allowing expectations about the future to become more harmonised and orderly, they act as stabilisers for the provision of liquidity. Conventions might, of course, change at any time. Nonetheless, by being attached to the daily trading routine and/or integrated within the institutional structure, the confidence in their relevance and validity can be long-lasting. In the foreign exchange market, in particular, where prices are quoted to end-users on demand, market-making banks rely upon a convention to quote each other prices to maintain liquidity. However, the rise of algorithmic and high-frequency trading poses a practical as well as a theoretical challenge to such conventions. By reacting ultra-fast to new information, including to new limit orders submitted by others, markets largely populated with algorithmic traders have become susceptible to a withdrawal of liquidity at an unprecedented speed and scale. Using a high-frequency dataset provided by EBS, this paper investigates the process of liquidity withdrawal from the foreign exchange spot market. By doing so, it considers the crowding out of conventions associated with liquidity provision, traditionally upheld through mutual understanding among financial institutions – in other words, reciprocity and trust among humans.

Capital Accumulation and Stagnation in Portugal

Mariana Mortagua
Republic of Portugal


This paper takes issue with the long-term stagnation tendencies affecting the Portuguese economy, with particular emphasis on the ‘Lost Decade’, in the 2000’s. Secular Stagnation has been presented as a monetary phenomenon. This paper questions that perspective and argues that stagnation emerges as the result of the very process of capital accumulation and concentration. Considering capital not as factor of production but as embodiment of power relations, its accumulation and concentration do not necessarily correspond to growth and investment. The concept of ‘sabotage’ proposed by Veblen (2001 [1921]) may be productively deployed to describe the negative effects of capital concentration and accumulation in Portugal. Contrary to the usual view that presents this process as the result of market failures, technological breakthroughs or increasing returns to scale, it is argued that oligopolies emerge as a combination of four factors: privileged access to finance, or State power, family heritage and fraud. The investment theories of Kalecki and Steindl will be drawn upon to understand the links between the prevalence of ‘monopoly power’ and stagnant investment and growth. The concentration of surplus in large conglomerates with lower propensity to invest relatively to small and medium enterprises leads to a situation of overall indebtedness and stagnation, known as the ‘Lost Decade’.

The Difference Between Gross and Net Debt: What It Is and Why It Matters

Jan Toporowski
University of London


The paper analyses how the balance sheets of credit institutions expand in the course of liquidity operations. This balance sheet expansion gives rise to differences between gross and net debt, as well as gross and net assets or wealth, or interest. These differences arise because of liquidity operations. The paper concludes that stagnation of effective demand cannot be overcome by credit operations, because these affect liquidity rather investment or saving.
Eugenia Correa
National Autonomous University of Mexico
JEL Classifications
  • E0 - General
  • G0 - General