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Explaining persistent cycles in a short-run context: firms’ propensity to invest and omnipotent shareholders

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  • Charles, Sébastien

Abstract

In this article, we develop a standard short-run Kaleckian macromodel. First, we study the stability of equilibrium and make some comparative static exercises. Then, we take into account different specifications for an endogenous propensity to invest and systematically analyze the short-run dynamics of the model. We show that when firms’ managers adopt abnormal behaviours due to pressures from shareholders regarding the propensity to invest the system exhibits persistent cycles and chaotic trajectories. The analysis emphasizes that, even in the short-run, shareholders may generate instability which represents a serious threat that should not be underestimated for a capitalist economy.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18520.

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Date of creation: 2009
Date of revision: 2009
Handle: RePEc:pra:mprapa:18520

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Keywords: Kaleckian model; propensity to invest; fluctuations;

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  1. Sébastien Charles, 2008. "Teaching Minsky's financial instability hypothesis: a manageable suggestion," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(1), pages 125-138, September.
  2. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
  3. 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.
  4. Antonio J.A. Meirelles & Gilberto Tadeu Lima, 2006. "Debt, financial fragility, and economic growth: a Post Keynesian macromodel," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 29(1), pages 93-115, October.
  5. Gilberto Tadeu Lima & Antonio J. A. Meirelles, 2003. "Endogenous Banking Markup, Distributional Conflict and Capacity Utilization," Metroeconomica, Wiley Blackwell, vol. 54(2-3), pages 366-384, 05.
  6. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  7. Grasman, Johan & Wentzel, Jolanda J., 1994. "Co-existence of a limit cycle and an equilibrium in Kaldor's business cycle model and its consequences," Journal of Economic Behavior & Organization, Elsevier, vol. 24(3), pages 369-377, August.
  8. Sébastien Charles, 2008. "Corporate debt, variable retention rate and the appearance of financial fragility," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 781-795, September.
  9. 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., vol. 12(4), pages 519-542, July.
  10. Semmler, Willi, 1987. "A macroeconomic limit cycle with financial perturbations," Journal of Economic Behavior & Organization, Elsevier, vol. 8(3), pages 469-495, September.
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Cited by:
  1. Hiroaki Sasaki & Shinya Fujita, 2010. "The Importance of the Retention Ratio in a Kaleckian Model with Debt Accumulation," Discussion papers e-10-008, Graduate School of Economics Project Center, Kyoto University.

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