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Inventory growth cycles with debt-financed investment
[Cycles de croissance et des stocks dans une économie financée par la dette]

Author

Listed:
  • Matheus R Grasselli

    (Department of Mathematics and Statistics, McMaster University, Hamilton, Canada, Fields Institute for Research In Mathematical Sciences - Fields Institute for Research In Mathematical Sciences)

  • Adrien Nguyen-Huu

    (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

Abstract

We propose a continuous-time stock-flow consistent model for inventory dynamics in an economy with firms, banks, and households. On the supply side, firms decide on production based on adaptive expectations for sales demand and a desired level of inventories. On the demand side, investment is determined as a function of utilization and profitability and can be financed by debt, whereas consumption is independently determined as a function of income and wealth. Prices adjust sluggishly to both changes in labour costs and inventory. Disequilibrium between expected sales and demand is absorbed by unplanned changes in inventory. This results in a five-dimensional dynamical system for wage share, employment rate, private debt ratio, expected sales, and capacity utilization. We analyze two limiting cases: the long-run dynamics provides a version of the Keen model with effective demand and varying inventories, whereas the short-run dynamics gives rise to behaviour that we interpret as Kitchin cycles.

Suggested Citation

  • Matheus R Grasselli & Adrien Nguyen-Huu, 2016. "Inventory growth cycles with debt-financed investment [Cycles de croissance et des stocks dans une économie financée par la dette]," Working Papers hal-01376201, HAL.
    • Handle: RePEc:hal:wpaper:hal-01376201
    Note: View the original document on HAL open archive server: https://hal.science/hal-01376201
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    References listed on IDEAS

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    1. Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
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    4. Matheus R. Grasselli & Adrien Nguyen Huu, 2015. "Inflation and Speculation in a Dynamic Macroeconomic Model," JRFM, MDPI, vol. 8(3), pages 1-26, July.
    5. Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.
    6. Costa Lima, B. & Grasselli, M.R. & Wang, X.-S. & Wu, J., 2014. "Destabilizing a stable crisis: Employment persistence and government intervention in macroeconomics," Structural Change and Economic Dynamics, Elsevier, vol. 30(C), pages 30-51.
    7. Wang, Pengfei & Wen, Yi & Xu, Zhiwei, 2014. "What inventories tell us about aggregate fluctuations—A tractable approach to (S,s) policies," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 196-217.
    8. 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.
    9. Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
    10. Anwar Shaikh, 2009. "Economic Policy In A Growth Context: A Classical Synthesis Of Keynes And Harrod," Metroeconomica, Wiley Blackwell, vol. 60(3), pages 455-494, July.
    11. Moses Abramovitz, 1950. "Inventories and Business Cycles, with Special Reference to Manufacturers' Inventories," NBER Books, National Bureau of Economic Research, Inc, number abra50-1.
    12. Soon Ryoo, 2013. "The Paradox Of Debt And Minsky'S Financial Instability Hypothesis," Metroeconomica, Wiley Blackwell, vol. 64(1), pages 1-24, February.
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    Cited by:

    1. Araujo, Ricardo Azevedo & Dávila-Fernández, Marwil J. & Moreira, Helmar Nunes, 2019. "Some new insights on the empirics of Goodwin's growth-cycle model," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 42-54.
    2. S Devrim Yilmaz & Engelbert Stockhammer, 2019. "Coupling Cycle Mechanisms: Minsky debt cycles and the Multiplier-Accelerator," CEPN Working Papers hal-02012724, HAL.
    3. Giraud, Gaël & Grasselli, Matheus, 2021. "Household debt: The missing link between inequality and secular stagnation," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 901-927.
    4. Nguyen-Huu, Adrien & Pottier, Antonin, 2020. "Hicksian traverse revisited: Conditions for the energy transition," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 102-111.
    5. Engelbert Stockhammer, 2019. "Coupling cycle mechanisms: Minsky debt cycles and the multiplier-accelerator," Working Papers PKWP1904, Post Keynesian Economics Society (PKES).
    6. Bovari, Emmanuel & Giraud, Gaël & Mc Isaac, Florent, 2018. "Coping With Collapse: A Stock-Flow Consistent Monetary Macrodynamics of Global Warming," Ecological Economics, Elsevier, vol. 147(C), pages 383-398.
    7. Emmanuel Bovari & Gaël Giraud & Florent McIsaac, 2018. "Carbon Pricing and Global Warming: A Stock-flow Consistent Macro-dynamic Approach," Working Paper 0a6be926-7c78-4aba-a60b-6, Agence française de développement.
    8. Jacobo, Juan, 2022. "A multi time-scale theory of economic growth and cycles," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 143-155.
    9. 'Eric Herbert & and Gael Giraud & Aur'elie Louis-Napol'eon & Christophe Goupil, 2022. "Macroeconomic Dynamics in a finite world: the Thermodynamic Potential Approach," Papers 2204.02038, arXiv.org, revised May 2022.
    10. Matheus R Grasselli & Alexander Lipton, 2018. "The Broad Consequences of Narrow Banking," Papers 1810.05689, arXiv.org.
    11. Matheus R. Grasselli & Alexander Lipton, 2019. "The Broad Consequences Of Narrow Banking," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-22, February.
    12. Ogawa, Shogo, 2022. "Capital and inventory investments under quantity constraints: A microfounded Metzlerian model," MPRA Paper 111906, University Library of Munich, Germany.

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    More about this item

    Keywords

    macroeconomic dynamics; business cycles; inventories; disequilibrium analysis;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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