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Financialisation and Crisis in an Agent Based Macroeconomomic Model

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  • Riccetti, Luca
  • Russo, Alberto
  • Gallegati, Mauro

Abstract

In the present paper we analyse the role of dividends distributed by firms and banks, highlighting the effects of their increase on financial instability and macroeconomic dynamics. During the last decades, the financialisation of nonfinancial corporations has been characterised by a shift from a "retain and reinvest" strategy to a "downsize and distribute" strategy. We will investigate such a phenomenon by varying some of the model parameters, so simulating firms’ and banks’ behaviours under alternative settings. On the one hand, more distributed dividends increases agents’ wealth and thus consumption may rise due to a wealth-effect. On the other hand, increasing dividends reduce firms’ net worth that may result in a strong dependence of firms’ production on bank credit; at the same time, if also banks distribute more dividends, then banks’ capital decreases and this may result in credit rationing. As we will see, financialisation through increasing dividends impacts financial (in)stability and income distribution, with relevant consequences on macroeconomic dynamics.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51074.

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Date of creation: Oct 2013
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Handle: RePEc:pra:mprapa:51074

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Keywords: agent-based macroeconomics; business cycle; leverage; payout policy; financialisation; crisis;

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  1. Eugene F. Fama & Kenneth R. French, 2001. "Disappearing Dividends: Changing Firm Characteristics Or Lower Propensity To Pay?," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 14(1), pages 67-79.
  2. Kalemli-Ozcan, Sebnem & Sorensen, Bent & Yesiltas, Sevcan, 2012. "Leverage across firms, banks, and countries," Journal of International Economics, Elsevier, Elsevier, vol. 88(2), pages 284-298.
  3. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Leveraged network-based financial accelerator," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(8), pages 1626-1640.
  4. Ozgür Orhangazi, 2008. "Financialisation and capital accumulation in the non-financial corporate sector:," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 32(6), pages 863-886, November.
  5. Acharya, Viral V & Gujral, Irvind & Kulkarni, Nirupama & Shin, Hyun Song, 2012. "Dividends and Bank Capital in the Financial Crisis of 2007-2009," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8801, C.E.P.R. Discussion Papers.
  6. DeAngelo, Harry & DeAngelo, Linda & Skinner, Douglas J., 2004. "Are dividends disappearing? Dividend concentration and the consolidation of earnings," Journal of Financial Economics, Elsevier, Elsevier, vol. 72(3), pages 425-456, June.
  7. Engelbert Stockhammer, 2004. "Financialisation and the slowdown of accumulation," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 28(5), pages 719-741, September.
  8. Till van Treeck, 2009. "The macroeconomics of "financialisation" and the deeper origins of the world economic crisis," IMK Working Paper 9-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  9. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, Elsevier, vol. 89(1), pages 62-82, July.
  10. Skinner, Douglas J., 2008. "The evolving relation between earnings, dividends, and stock repurchases," Journal of Financial Economics, Elsevier, Elsevier, vol. 87(3), pages 582-609, March.
  11. Russo, Alberto, 2012. "Elements of novelty, known mechanisms, and the fundamental causes of the recent crisis," MPRA Paper 41088, University Library of Munich, Germany.
  12. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1627-1650, September.
  13. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, Elsevier, vol. 79(3), pages 469-506, March.
  14. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2012. "An Agent Based Decentralized Matching Macroeconomic Model," MPRA Paper 42211, University Library of Munich, Germany.
  15. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262550253, December.
  16. Blake LeBaron & Leigh Tesfatsion, 2008. "Modeling Macroeconomies as Open-Ended Dynamic Systems of Interacting Agents," American Economic Review, American Economic Association, American Economic Association, vol. 98(2), pages 246-50, May.
  17. Dünhaupt, Petra, 2013. "The effect of financialization on labor's share of income," IPE Working Papers 17/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  18. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
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