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The Finance of the Transition Phase

In: Balanced and Cyclical Growth in Models of Decentralized Economy

Author

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  • Alexander P. Abramov

    (Russian Academy of Sciences)

Abstract

In this chapter, we consider the dynamics of financial indicators related to transition of decentralized economic systems to balanced growth. We show that this mode can be reached asymptotically if sectors aim at maximizing their profit when planning production. We define rules for setting prices that solve this problem. We formulate the conditions under which the payment balances of all sectors approach zero. We also consider the financial aspect of commodity credit and a mechanism of managing payment balances. We describe a pricing mechanism that allows sectors to pay off their debts. We also provide an economic interpretation of all the eigenvalues of a technology matrix. To do this, we introduce the notion of the reverse mode of a Leontief technology. This virtual mode allows us to extract, from a final product, all the resources used to produce it. When some sectors use this mode, the system receives additional resources. This allows sectors that use conventional Leontief technologies to achieve a constant expansion rate that exceeds the model’s von Neumann expansion rate.

Suggested Citation

  • Alexander P. Abramov, 2014. "The Finance of the Transition Phase," Lecture Notes in Economics and Mathematical Systems, in: Balanced and Cyclical Growth in Models of Decentralized Economy, edition 127, chapter 0, pages 81-98, Springer.
    • Handle: RePEc:spr:lnechp:978-3-319-07917-2_4
    DOI: 10.1007/978-3-319-07917-2_4
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