Financial fragility, effective demand and the business cycle
A shifting equilibrium model of effective demand is constructed, in which the state of long run expectations is non-constant, and is affected by the disappointment of short-run expectations. It is shown that this model gives rise to cumulative expansions/contractions in nominal income. Changes in the financial fragility of households and firms in the course of these expansions/contractions are then allowed for, together with commercial bank reactions to changing financial fragility. It is shown that turning points in the expansions/contractions of nominal income can arise, resulting in a model of aggregate fluctuations in which the business cycle is aperiodic and of no fixed amplitude.
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Volume (Year): 16 (2004)
Issue (Month): 2 ()
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- Lavoie, Marc, 1996.
"Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 43(3), pages 275-300, August.
- Lavoie, M, 1995. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Working Papers 9513e, University of Ottawa, Department of Economics.