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The reflux phase in monetary circuit theory and stock–flow consistent models

Author

Listed:
  • Edouard Cottin-Euziol

    (LC2S - Laboratoire caribéen de sciences sociales - CNRS - Centre National de la Recherche Scientifique - UA - Université des Antilles)

  • Hassan Bougrine

    (Laurentian University)

  • Louis-Philippe Rochon

    (Laurentian University)

Abstract

Stock–flow consistent (SFC) modelling and monetary circuit theory (MCT) have many similarities. However, an important difference concerns the reflux phase, during which the credits issued by banks are repaid. This phase is constitutive of MCT models, but does not generally appear explicitly in SFC models. The authors propose here to develop an SFC model in which the bank loans issued at the beginning of a period are explicitly repaid at the end of it. The repayment of long-term bank loans financing investments will then represent a leakage outside the monetary circuit and affect the level of aggregate demand and the dynamics of the model. The authors show that considering these repayments could have a lasting effect on corporate profits, corporate indebtedness, and growth of production. This result suggests that it could be interesting to focus more on the reflux phase within SFC models, taking inspiration from MCT.

Suggested Citation

  • Edouard Cottin-Euziol & Hassan Bougrine & Louis-Philippe Rochon, 2024. "The reflux phase in monetary circuit theory and stock–flow consistent models," Post-Print hal-04420693, HAL.
    • Handle: RePEc:hal:journl:hal-04420693
    DOI: 10.4337/ejeep.2022.0086
    Note: View the original document on HAL open archive server: https://hal.science/hal-04420693
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    References listed on IDEAS

    as
    1. Louis-Philippe Rochon, 1999. "The Creation and Circulation of Endogenous Money: A Circuit Dynamique Approach," Journal of Economic Issues, Taylor & Francis Journals, vol. 33(1), pages 1-21, March.
    2. Hassan Bougrine & Mario Seccareccia, 2002. "Money, Taxes, Public Spending, and the State Within a Circuitist Perspective," International Journal of Political Economy, Taylor & Francis Journals, vol. 32(3), pages 58-79.
    3. Thomas I. Palley, 1997. "Aggregate Demand and Endogenous Growth: a Generalized Keynes-Kaldor Model of Economic Growth," Metroeconomica, Wiley Blackwell, vol. 48(2), pages 161-176, June.
    4. Steve Keen, 1995. "Finance and Economic Breakdown: Modeling Minsky’s “Financial Instability Hypothesis”," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 17(4), pages 607-635, July.
    5. Mario Seccareccia, 1988. "Systemic Viability and Credit Crunches: An Examination of Recent Canadian Cyclical Fluctuations," Journal of Economic Issues, Taylor & Francis Journals, vol. 22(1), pages 49-77, March.
    6. Jean-Francois Renaud, 2000. "The Problem of the Monetary Realization of Profits in a Post Keynesian Sequential Financing Model: Two solutions of the Kaleckian option," Review of Political Economy, Taylor & Francis Journals, vol. 12(3), pages 285-303.
    7. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115.
    8. Lavoie, Marc, 1999. "The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 23(1), pages 103-113, January.
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    More about this item

    Keywords

    monetary circuit; stock–flow consistency; reflux; bank loans;
    All these keywords.

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