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Cash flow, investment, and Keynes-Minsky cycles

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Author Info

  • Fazzari, Steven
  • Ferri, Piero
  • Greenberg, Edward

Abstract

This paper analyzes a dynamic model with (1) an investment function that emphasizes cash flow, (2) a Keynesian macroeconomic framework that determines cash flow endogenously, (3) a dynamic labor market model that drives wage and price adjustments, and (4) boundedly rational expectations. Simulations from the calibrated model generate endogenous cycles with characteristics described in Hyman Minsky's research. The cycle arises from the link between investment, interest rates, debt service, and cash flow. The amplitude and frequency of the cycle are related to the importance of cash flow for investment, the dynamics of inflation, and the distribution of income.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 3-4 (March)
Pages: 555-572

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:555-572

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Web page: http://www.elsevier.com/locate/jebo

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References

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  1. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  2. Marc Jarsulic, 1989. "Endogenous Credit and Endogenous Business Cycles," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(1), pages 35-48, October.
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  4. GRANDMONT, Jean-Michel, 1997. "Expectations formation and stability of large socioeconomic systems," CORE Discussion Papers 1997088, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  9. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  10. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1875-1911, December.
  11. Gatti, D. Delli & Gallegati, M. & Gardini, L., 1993. "Investment confidence, corporate debt and income fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 22(2), pages 161-187, October.
  12. Victor Zarnowitz, 1999. "Theory and History behind Business Cycles: Are the 1990s the Onset of a Golden Age?," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 69-90, Spring.
  13. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
  14. Domenico Delli Gatti & Mauro Gallegati & Hyman P. Minsky, 1994. "Financial Institutions, Economic Policy, and the Dynamic Behavior of the Economy," Economics Working Paper Archive wp_126, Levy Economics Institute.
  15. Steven M. Fazzari & Piero Ferri & Edward Greenberg, 1998. "Aggregate Demand and Firm Behavior: A New Perspective on Keynesian Microfoundations," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 20(4), pages 527-558, July.
  16. Taylor, Lance & O'Connell, Stephen A, 1985. "A Minsky Crisis," The Quarterly Journal of Economics, MIT Press, vol. 100(5), pages 871-85, Supp..
  17. Palley, Thomas I., 2008. "Keynesian models of deflation and depression revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 167-177, October.
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Citations

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Cited by:
  1. Agustinus, Prasetyantoko, 2007. "Foreign Ownership and Firm Financing Constraint in Indonesia," MPRA Paper 6500, University Library of Munich, Germany.
  2. Tramontana, F. & Gardini, L. & Ferri, P., 2010. "The dynamics of the NAIRU model with two switching regimes," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 681-695, April.
  3. Ryoo, Soon, 2010. "Long waves and short cycles in a model of endogenous financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 163-186, June.
  4. Giovani Dosi & Giorgio Fagiolo & Andrea Roventini & Mauro Napoletano, 2012. "Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model," INET Research Notes 11, Institute for New Economic Thinking (INET).
  5. Piero Ferri & Anna Maria Variato, 2007. "Endogenous Cycles, Debt and Monetary Policy," Working Papers 0703, University of Bergamo, Department of Economics.
  6. Piero Ferri & Anna Variato, 2010. "Uncertainty and Learning in Stochastic Macro Models," International Advances in Economic Research, Springer, vol. 16(3), pages 297-310, August.
  7. Passarella, Marco, 2011. "From the village fair to Wall Street. The Italian reception of Minsky’s economic thought," MPRA Paper 49593, University Library of Munich, Germany.
  8. Agustinus Prasetyantoko, 2006. "Financing Constraint and Firm Investment Following a Financial Crisis in Indonesia," Post-Print halshs-00133964, HAL.
  9. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
  10. Iancu, Aurel, 2011. "Financial System Fragility Models," Working Papers of National Institute of Economic Research 110211, National Institute of Economic Research.
  11. Fazzari, Steven M. & Ferri, Piero & Greenberg, Edward, 2010. "Investment and the Taylor rule in a dynamic Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2010-2022, October.
  12. Piero Ferri & Anna Maria Variato, 2007. "Macro Dynamics in a Model with Uncertainty," Working Papers 0704, University of Bergamo, Department of Economics.
  13. Raberto, Marco & Teglio, Andrea & Cincotti, Silvano, 2012. "Debt, deleveraging and business cycles: An agent-based perspective," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(27), pages 1-49.
  14. Datta, Soumya, 2012. "Cycles and Crises in a Model of Debt-financed Investment-led Growth," MPRA Paper 50200, University Library of Munich, Germany, revised 12 Dec 2012.

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