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Financial dynamics in the medium run

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  • Toshio Watanabe

Abstract

We develop a medium‐run dynamic model to investigate the effects of financial factors and production technique on a capitalist economy. We incorporate neoclassical elements and contributions of Keynes, Kalecki, and Minsky into the model. We formulate a price decision and endogenous money supply mechanism. The medium‐run steady state is constrained by the normal capacity utilization rate. Moreover, the economy can become endogenously unstable if bank lending reacts excessively to the firm's profit rate. In a stable economy, an increase in the target‐inflation rate increases the expected inflation rate and interbank rate but does not affect the optimal labor‐capital ratio.

Suggested Citation

  • Toshio Watanabe, 2023. "Financial dynamics in the medium run," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 632-656, July.
    • Handle: RePEc:bla:metroe:v:74:y:2023:i:3:p:632-656
    DOI: 10.1111/meca.12417
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    References listed on IDEAS

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