Corporate debt, variable retention rate and the appearance of financial fragility

Charles, Sébastien

doi:10.1093/cje/ben003

“…Many empirical studies find retained earnings or ‘cash flow’ to be an important determinant of investment (Fazzari and Mott, ; Fazzari et al ., ; Chirinko and Schaller, ; Chirinko et al ., ; Ndikumana, ). As in Jarsulic () and Charles (), our desired investment rate ( g K = I / K ) therefore responds to the retained earnings rate ( r F ) .

g_{normalK} = κ_{0} + κ_{normalr} r_{normalF}

Here κ r captures the sensitivity of desired investment to retained earnings, and κ 0 captures autonomous investment.…”

Section: Theoretical Frameworkmentioning

confidence: 82%

“…This decline in effective demand reduces capacity utilization in proportion. As in Charles (), our neo‐Kaleckian model of debt dynamics is wage‐led or ‘stagnationist’ (Bhaduri and Marglin, ; Blecker, ).…”

Section: Temporary Equilibriummentioning

confidence: 99%

Consumer and Corporate Debt: A Neo‐Kaleckian Synthesis

Isaac

¹

,

Kim

²

2012

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We present a neo‐Kaleckian growth model with both consumer and corporate debt. The model's macrodynamic and stability characteristics differ from singleߚdebt models, yet some steadyߚstate results persist. For example, a surge in ‘animal spirits’ is good for steadyߚstate growth, and consumer borrowing can help to sustain aggregate demand. Stable steady states are characterized by a kind of ‘euthanasia of the rentier’. Consumer credit conditions influence effective demand, the profit rate and economic growth. Looser consumer credit conditions have a steadyߚstate growth effect and can enhance system stability. In this restricted sense, looser consumer credit conditions are good for macroeconomic stability.

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“…In this case, although the rate of profit is a predetermined variable, the utilization rate remains endogenous in the long run. The main conclusion of this subsection is that in a world where different groups within the firm have different objectives, the equality of actual and normal rates of 31 Charles (2008) also suggests that the retention ratio of firms should be treated as an endogenous variable. There, managers target some level of the retention ratio in order 'to preserve their financial autonomy' (p. 9).…”

Section: Goods and Labour Market Reactions Stabilise The System Ii: Fmentioning

confidence: 97%

Some instability puzzles in Kaleckian models of growth and distribution: a critical survey

Hein¹,

Lavoie²,

Treeck

³

2010

Cambridge Journal of Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe tackle the issue of the possible instability of the Kaleckian distribution and growth model and the consequences for the endogeneity of the equilibrium rate of capacity utilization and for the paradox of thrift and the paradox of costs. Distinguishing between Keynesian and Harrodian instability, we review various mechanisms that have been proposed to tame Harrodian instability while bringing back the rate of utilization to its normal rate. We find that the mechanisms that have been suggested are far from being convincing. We thus review some approaches arguing that the adjustment towards a predetermined normal rate should not be expected at all, either because the normal rate reacts to the actual rate, or because of other constraints on the behaviour of entrepreneurs. We conclude that Kaleckian models are more flexible than their Harrodian and Marxian critics suppose when attacking the simple textbook version.JEL code: E12, E20, O41

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“…In the Minsky Model in Keen (2013Keen ( , 2014, private debt hurts growth for the sole reason that high debt burdens add to firms' costs, reducing the profit rate, which determines net investment. Another continuous, deterministic approach to modeling the financial fragility hypothesis is to simply augment the investment function with a financial conditions variable, a tack that is taken in Asada (2006), Charles (2008), Datta (2012), Fazzari et al (2001Fazzari et al ( , 2008, Fisher and López (2014), Gallegati and Gardini (1991), Palley (2010), Patriarca and Sardoni (2011), Ryoo (2013), Schoder (2014) and many others. Kapeller and Schütz (2014) features constraints on consumer loans that change over time with financial conditions.…”

Section: )mentioning

confidence: 99%

Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility

Hannsgen

¹

,

Young-Taft

²

2015

SSRN Journal

1

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu The idea of including a model of greenhouse gas accumulation in the model developed in this paper was inspired by the presentations at a conference at SCEPA, The New School for Social Research, New York City, which was attended by several Levy Institute scholars. This conference took place on April 25 and 26, 2014. We thank the organizers of that conference. † hannsgen@levy.org ‡ tyoungtaft@simons-rock.edu If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicatedThe Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. 1 AbstractWe hope to model financial fragility and money in a way that captures much of what is crucial in Hyman Minsky's financial fragility hypothesis. This approach to modeling Minsky may be unique in the formal Minskyan literature. Namely, we adopt a model in which a psychological variable we call financial prudence (P) declines over time following a financial crash, driving a cyclical buildup of leverage in household balance sheets. High leverage or a low safe-asset ratio in turn induces high financial fragility (FF). In turn, the pathways of FF and capacity utilization (u) determine the probabilistic risk of a crash in any time interval. When they occur, these crashes entail discrete downward jumps in stock prices and financial sector assets and liabilities.To the endogenous government liabilities in Hannsgen (2014), we add common stock and bank loans and deposits. In two alternative versions of the wage-price module in the model (wagePhillips curve and chartalist, respectively), the rate of wage inflation depends on either unemployment or the wage-setting policies of the government sector. At any given time t, goods prices also depend on endogenous markup and labor productivity variables. Goods inflation affects aggregate demand through its impact on the value of assets and debts. Bank rates depend...

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Corporate debt, variable retention rate and the appearance of financial fragility

Cited by 41 publications

References 12 publications

Consumer and Corporate Debt: A Neo‐Kaleckian Synthesis

Consumer and Corporate Debt: A Neo‐Kaleckian Synthesis

Some instability puzzles in Kaleckian models of growth and distribution: a critical survey

Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility

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