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Liquidity preference, uncertainty, and recession in a stock-flow consistent model

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  • Yannis Dafermos

Abstract

This paper develops a stock-flow consistent model that explicitly integrates the role of liquidity preference and perceived uncertainty into the decision-making process of households, firms, and commercial banks. Emphasis is placed on (1) the link between the precautionary motive and the asset choice of the private sector, (2) the effect of perceived uncertainty on the desired margins of safety and borrowing, and (3) the impact of financial obligations on the liquidity preference of households and firms. Performing a simulation experiment, the paper illuminates the channels through which a rise in perceived uncertainty is likely to set off a recessionary process.

Suggested Citation

  • Yannis Dafermos, 2012. "Liquidity preference, uncertainty, and recession in a stock-flow consistent model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 34(4), pages 749-776.
    • Handle: RePEc:mes:postke:v:34:y:2012:i:4:p:749-776
    DOI: 10.2753/PKE0160-3477340407
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    Cited by:

    1. Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.
    2. Nikolaidi, Maria, 2014. "Margins of safety and instability in a macrodynamic model with Minskyan insights," Structural Change and Economic Dynamics, Elsevier, vol. 31(C), pages 1-16.
    3. Dafermos, Yannis & Nikolaidi, Maria & Galanis, Giorgos, 2017. "A stock-flow-fund ecological macroeconomic model," Ecological Economics, Elsevier, vol. 131(C), pages 191-207.
    4. Marco Missaglia & Patricia Sanchez, 2020. "Liquidity preference in a world of endogenous money: A short-note," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 39(81), pages 595-612, July.
    5. Yannis Dafermos & Christos Papatheodorou, 2015. "Linking functional with personal income distribution: a stock-flow consistent approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 787-815, November.
    6. Missaglia, Marco & Botta, Alberto, 2022. "Households’ liquidity preference, banks’ capitalization and the macroeconomy: a theoretical investigation," Greenwich Papers in Political Economy 36807, University of Greenwich, Greenwich Political Economy Research Centre.
    7. Jessica Reale, 2022. "Interbank market and funding liquidity risk in a stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 734-769, July.
    8. Jessica Reale, 2023. "Interbank Decisions and Margins of Stability: an Agent-Based Stock-Flow Consistent Approach," Papers 2306.05860, arXiv.org.

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