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‘Solvency rule’ and capital centralisation in a monetary union

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  • Emiliano Brancaccio
  • Giuseppe Fontana

Abstract

Brancaccio and Fontana (2013) have suggested that the central bank influences the solvency conditions of firms and households in the economic system. This ‘solvency rule’ is examined here within a stylised model of a monetary union characterised by different rates of accumulation and inflation across its two member countries. The rule highlights the existence of a relationship between the interest rate set by the central monetary authority and the allocation of ownership of existing physical capital among the member countries of the monetary union, i.e. the ‘rates of capital centralisation’. The paper also shows the nexus between solvency and government debt sustainability, and examines the implications of deflationary or currency devaluation policies for the solvency conditions.

Suggested Citation

  • Emiliano Brancaccio & Giuseppe Fontana, 2016. "‘Solvency rule’ and capital centralisation in a monetary union," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(4), pages 1055-1075.
    • Handle: RePEc:oup:cambje:v:40:y:2016:i:4:p:1055-1075.
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    File URL: http://hdl.handle.net/10.1093/cje/bev068
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    Cited by:

    1. Brancaccio, Emiliano & Giammetti, Raffaele & Lopreite, Milena & Puliga, Michelangelo, 2019. "Monetary policy, crisis and capital centralization in corporate ownership and control networks: A B-Var analysis," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 55-66.
    2. Brancaccio, Emiliano & Califano, Andrea & Lopreite, Milena & Moneta, Alessio, 2020. "Nonperforming loans and competing rules of monetary policy: A statistical identification approach," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 127-136.
    3. Brancaccio, Emiliano & Giammetti, Raffaele & Lopreite, Milena & Puliga, Michelangelo, 2018. "Centralization of capital and financial crisis: A global network analysis of corporate control," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 94-104.
    4. Califano, Andrea & Gasperin, Simone, 2019. "Multi-speed Europe is already there: Catching up and falling behind," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 152-167.
    5. Emiliano Brancaccio, Orsola Costantini, Stefano Lucarelli, 2015. "Crisi e centralizzazione del capitale finanziario (Crysis and Centralization of Financial Capital)," Moneta e Credito, Economia civile, vol. 68(269), pages 53-79.
    6. Emiliano Brancaccio, 2023. "Centralizzazione del capitale, guerra e pace (Centralization of capital, war and peace)," Moneta e Credito, Economia civile, vol. 76(304), pages 339-356.

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