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'Financialisation' in Post-Keynesian models of distribution and growth - a systematic review

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Author Info

  • Eckhard Hein

    ()
    (IMK at the Hans Boeckler Foundation and Carl von Ossietzky University Oldenburg, Germany)

  • Till van Treeck

    ()
    (IMK at the Hans Boeckler Foundation)

Abstract

We review recent attempts to integrate 'financialisation' processes into Post-Keynesian distribution and growth models and distinguish three principal channels of influence: 1. objectives and finance restrictions of firms, 2. new opportunities for households' wealth-based and debt-financed consumption, and 3. distribution between capital and labour, on the one hand, and between management and workers on the other hand. Starting from a re-interpretation of the Post-Keynesian theory of the firm we bridge the gap between micro- and macro-analysis of 'financialisation' and we trace the main characteristics and effects of 'financialisation' from the micro to the macro level taking into account stock-flow interactions. Our review of the theoretical literature on 'financialisation' shows that expansive effects may arise under certain conditions, in particular when there are strong wealth effects in firms' investment decisions (via Tobin's q) and in households' consumption decisions. However, our review also suggests that even an expansive finance-led economy may build up major financial imbalances, i.e. increasing debt-capital or debt-income ratios, which make such economies prone to financial instability.

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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 10-2008.

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Length: 24 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:imk:wpaper:10-2008

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Keywords: Financialisation; Post-Keynesian distribution and growth models;

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References

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  1. Engelbert Stockhammer, 2000. "Financialization and the Slowdown of Accumulation," Working Papers, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness geewp14, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  2. Till van Treeck, 2007. "Reconsidering the Investment-Profit Nexus in Finance-Led Economies: an ARDL-Based Approach," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 01-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Engelbert Stockhammer, 2006. "Shareholder value orientation and the investment-profit puzzle," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 28(2), pages 193-215, January.
  4. Soon Ryoo & Peter Skott, 2008. "Financialization in Kaleckian economies with and without labor constraints," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2008-05, University of Massachusetts Amherst, Department of Economics.
  5. Craig Medlen, 2003. "The trouble with Q," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 25(4), pages 693-698, July.
  6. Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp153, Political Economy Research Institute, University of Massachusetts at Amherst.
  7. Amit Bhaduri & Kazimierz Laski & Martin Riese, 2006. "A Model Of Interaction Between The Virtual And The Real Economy," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 412-427, 07.
  8. Eckhard Hein, 2007. "Interest Rate, Debt, Distribution And Capital Accumulation In A Post-Kaleckian Model," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 310-339, 05.
  9. Engelbert Stockhammer, 2007. "Some Stylized Facts on the Finance-Dominated Accumulation Regime," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp142, Political Economy Research Institute, University of Massachusetts at Amherst.
  10. Thomas I. Palley, 1994. "Debt, Aggregate Demand, and the Business Cycle: An Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 16(3), pages 371-390, April.
  11. Till van Treeck, 2008. "The political economy debate on ‘financialisation’ – a macroeconomic perspective," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 01-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  12. Bhaskar, V. & Glyn, A., 1992. "Investment and Profitability: The Evidence from the Advanced Capitalist Countries," Economics Series Working Papers, University of Oxford, Department of Economics 99144, University of Oxford, Department of Economics.
  13. Peter Skott & Soon Ryoo, 2007. "Macroeconomic implications of financialization," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2007-08, University of Massachusetts Amherst, Department of Economics.
  14. Lavoie, M. & Seccareccia, M., 1999. "Minsky's Financial Fragility Hypothesis: a Missing Macroeconomic Link?," Working Papers, University of Ottawa, Department of Economics 9904e, University of Ottawa, Department of Economics.
  15. James R. Crotty, 1990. "Owner-Manager Conflict and Financial Theories of Investment Instability: A Critical Assessment of Keynes, Tobin, and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 12(4), pages 519-542, July.
  16. Till van Treeck, 2007. "A Synthetic, Stock-Flow Consistent Macroeconomic Model of Financialisation," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 06-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  17. Till van Treeck & Thomas Dallery, 2008. "Conflicting claims and equilibrium adjustment processes in a stock-flow consistent macro model," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 09-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  18. Marc Lavoie, 2009. "Cadrisme within a Post-Keynesian Model of Growth and Distribution," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(3), pages 369-391.
  19. Eckhard Hein, 2005. "Interest, debt and capital accumulation - a Kaleckian approach," Macroeconomics, EconWPA 0510007, EconWPA.
  20. Lavoie, M., 1993. "Interest Rates in Post-Keynesian Models of Growth and Distribution," Working Papers, University of Ottawa, Department of Economics 9314e, University of Ottawa, Department of Economics.
  21. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 339-364, 07.
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Citations

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Cited by:
  1. 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.
  2. Eckhard Hein, 2008. "Financialisation in a comparative static, stock-flow consistent Post-Kaleckian distribution and growth model," IMK Working Paper, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 21-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers, Post Keynesian Economics Study Group (PKSG) PKWP1305, Post Keynesian Economics Study Group (PKSG).
  4. Eckhard Hein, 2009. "A (Post-) Keynesian perspective on "financialisation"," IMK Studies 01-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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