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Interest, debt and capital accumulation - a Kaleckian approach

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  • Eckhard Hein

    ()
    (IMK at the Hans Boeckler Foundation)

Abstract

In the present paper we explicitly introduce interest payments and debt into a Kaleckian distribution and growth model with an investment function very close to Kalecki’s original writings. The effects of interest rate variations on the short-run equilibrium values of capacity utilisation, capital accumulation and the rate of profit are derived, and the long run effects on the equilibrium debt-capital-ratio are also analysed. It is shown, that the effects of interest variations on the endogenously determined equilibrium values of the model do not only depend on the parameter values in the saving and investment functions but also on the interest elasticity of distribution and in some cases on initial conditions with respect to the interest rate and the debt-capital-ratio. If the conditions for short-run ‘normal’ effects of interest rate variations are given, the economy will be characterised by a long-run unstable debt-capital-ratio and by the macroeconomic ‘paradox of debt’. These results are similar to other models and hint to the robustness of Kaleckian ‘monetary’ models of distribution and growth with respect to the specification of the investment function.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 05-2005.

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Length: 28 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:imk:wpaper:05-2005

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Keywords: Interest rate; debt; capital accumulation; Kaleckian model;

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References

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  1. Giuseppe Ciccarone, 1998. "Prices and Distribution in a Sraffian Credit Economy," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(4), pages 399-413.
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  4. Eckhard Hein & Carsten Ochsen, 2003. "Regimes of Interest Rates, Income Shares, Savings and Investment: A Kaleckian Model and Empirical Estimations for some Advanced OECD Economies," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 54(4), pages 404-433, November.
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Citations

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Cited by:
  1. Shinya Fujita & Hiroaki Sasaki, 2011. "Financialization and its Long-run Macroeconomic Effects in a Kalecki-Minsky Model," Discussion papers, Graduate School of Economics Project Center, Kyoto University e-11-001, Graduate School of Economics Project Center, Kyoto University.
  2. Yun Kim, 2012. "Emulation and Consumer Debt: Implications of Keeping-Up with the Joneses," Working Papers, Trinity College, Department of Economics 1208, Trinity College, Department of Economics.
  3. Hein, Eckhard, 2010. "The rate of interest as a macroeconomic distribution parameter: Horizontalism and Post-Keynesian models of distribution of growth," IPE Working Papers, Berlin School of Economics and Law, Institute for International Political Economy (IPE) 07/2010, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  4. Yun Kim & Alan Isaac, 2011. "Consumer and Corporate Debt: A Neo-Kaleckian Synthesis," Working Papers, Trinity College, Department of Economics 1108, Trinity College, Department of Economics.
  5. Engelbert Stockhammer & Ozlem Onaran, 2013. "Wage-led growth: theory, evidence, policy," Review of Keynesian Economics, Edward Elgar, Edward Elgar, vol. 1(1), pages 61-78, January.
  6. Hein, Eckhard, 2011. "Distribution, ‘Financialisation’ and the Financial and Economic Crisis – Implications for Post-crisis Economic Policies," MPRA Paper 31180, University Library of Munich, Germany.
  7. Eckhard Hein & Till van Treeck, 2008. "'Financialisation' in Post-Keynesian models of distribution and growth - a systematic review," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 10-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  8. Hein, Eckhard, 2011. "Finance-dominated capitalism, re-distribution, household debt and financial fragility in a Kaleckian distribution and growth model," MPRA Paper 34115, University Library of Munich, Germany.
  9. Georgios Argitis & Stella Michopoulou, 2011. "Are Full Employment and Social Cohesion Possible Under Financialization?," Forum for Social Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 40(2), pages 139-155, January.
  10. Argitis, Georgios & Michopoulou, Stella, 2010. "Monetary Policy, Interest Payments, Income Distribution and the Macroeconomy," Review of Applied Economics, Review of Applied Economics, Review of Applied Economics, vol. 6(1-2).
  11. Hiroshi Nishi, 2012. "On the Short-run Relationship between the Income Distribution- and Finance-Growth Regimes," Discussion papers, Graduate School of Economics Project Center, Kyoto University e-12-001, Graduate School of Economics Project Center, Kyoto University.
  12. Hiroaki Sasaki & Shinya Fujita, 2010. "The Importance of the Retention Ratio in a Kaleckian Model with Debt Accumulation," Discussion papers, Graduate School of Economics Project Center, Kyoto University e-10-008, Graduate School of Economics Project Center, Kyoto University.
  13. Hiroaki Sasaki & Shinya Fujita, 2012. "Income Distribution, Debt Accumulation, and Financial Fragility in a Kaleckian Model with Labor Supply Constraints," Discussion papers, Graduate School of Economics Project Center, Kyoto University e-12-007, Graduate School of Economics Project Center, Kyoto University.

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