International Conference “National and Regional Economics VII” October, 1-3, 2008

1. Macro-financial developments of Slovakia: an empirical analysis based on the monetary circuit theory International Conference “National and Regional Economics VII” October, 1-3, 2008 University of Košice, Slovakia Matthieu Llorca University of Burgundy, L.E.G/FARGO-CEMF

2. 1. Introduction • Economicsuccess of Slovakia: 01/01/2009 New Member of Euro Area and the first country of the Viségrad Group • Theoretical framework used: heterodox analysis, i.ethe monetary circuit theory • Is the monetary circuit theory relevant to explain macro-financialdeveloments over the last decade in Slovakia?

3. We focus on twoelements of the monetary circuit theory: - The Keynes-Kalecki identity - The nature endogenous of money • Organization of the paper: 1. Characteristics of the monetary circuit theory 2. Descriptive analysis of the macro-financialdevelopment in Slovakia 3. Econometricsfindings

4. 2. Theoreticalframework: the monetary circuit theory (MCT) • 2.1 Theoreticalroots: • Wicksell (1898) • Keynes (1929, 1936 and 1937) • Kalecki (1933, 1938 and 1954) • Sylos-Labini (1948) • Schumpeter (1953) • Joan Robinson (1956) • 2.2 Theoreticaldevelopment of the MCT: 60s-70s decade • French school (Le Bourva 1962, Barrère 1973, Parguez 1975, 80, 84 and 96, Schmitt 1966, 71, 75 and 84) • Italianschool (Graziani 1984, 85, 89 and 90, Messori 1985, Bellofiore, 1985) • Postkeynesian (Rochon, Lavoie, Seccareccia…..)

5. 2.3 Characteristics of the MCT • Monetarytheory of production: credit, money and production theory • Profit and repartitiontheory • Sequentialdynamicapproach (sequentialhistorical time, Robinson, 1980); Uncertainty (Davidson) • Hierarchicalrelationshipbetween the six economic agents (firms, commercial banks, central bank, households, government and rest of the world) • We focus on two MCT pillarsamongothers: - nature endogenous of money (2.3.1) - the Keynes-Kalecki identity (2.3.2)

6. 2.3.1 Endogenous nature of money - Money is created ex nihilo by commercial banks (Aglietta, 1979) - Credit i.e Keynes finance motive - Production makes the endogenous nature of money - Credits makes deposits -When the loans are repaid, deposits are destroyed • Theoretical debates about endogenous money (Pollin, 1991): • Accommodationist view (Moore, 1989) • Structuralist view (Palley 1996, 98) • Liquidity preference view (Howells 1995)

8. Endogenous money in MCT: horizontalist view i.ecentral bank has an accomodationnist role and must fix nominal interest rates (Arestis, 1996) 2.3.2 Saving-investment identity: Keynes-Kalecki identity • Structural relationship formulated by Keynes (1935) and Kalecki (1936, chap. 6 and 7 of the TG) • 5 sectors: - Firms - Households - Banks - Government - Rest of the world

9. (Se – Ie) + (Sf – If) = (Sg – Ig) + (Sm – Im) + (Sb – Ib) • if an economic sector has a net lending financial position, another sector will have a net borrowing financial position • The hierarchy between the different sector in the circuit explains the causality inside the Keynes-Kalecki identity running from the right side of the identity (i.e budget deficit, private consumption and bank profits) to the left side: namely firms profits and current account

10. 3. Macro-financial developments of Slovakia: descriptive analysis

12. 4. Econometrics findings • Quarterly data extractedfrom National Bank of Slovakia (2002/1 to 2007/4)