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Interest, debt and capital accumulation - a Kaleckian approach

  • Eckhard Hein

    ()

    (IMK at the Hans Boeckler Foundation)

In the present paper we explicitly introduce interest payments and debt into a Kaleckian distribution and growth model with an investment function very close to Kalecki’s original writings. The effects of interest rate variations on the short-run equilibrium values of capacity utilisation, capital accumulation and the rate of profit are derived, and the long run effects on the equilibrium debt-capital-ratio are also analysed. It is shown, that the effects of interest variations on the endogenously determined equilibrium values of the model do not only depend on the parameter values in the saving and investment functions but also on the interest elasticity of distribution and in some cases on initial conditions with respect to the interest rate and the debt-capital-ratio. If the conditions for short-run ‘normal’ effects of interest rate variations are given, the economy will be characterised by a long-run unstable debt-capital-ratio and by the macroeconomic ‘paradox of debt’. These results are similar to other models and hint to the robustness of Kaleckian ‘monetary’ models of distribution and growth with respect to the specification of the investment function.

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Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 05-2005.

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Length: 28 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:imk:wpaper:05-2005
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  4. Eckhard Hein, 2007. "Interest Rate, Debt, Distribution And Capital Accumulation In A Post-Kaleckian Model," Metroeconomica, Wiley Blackwell, vol. 58(2), pages 310-339, 05.
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  9. Thomas I. Palley, 1996. "Accommodationism versus Structuralism: Time for an Accommodation," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(4), pages 585-594, July.
  10. Lavoie, M, 1995. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Working Papers 9513e, University of Ottawa, Department of Economics.
  11. Sawyer, Malcolm, 2001. "Kalecki on Imperfect Competition, Inflation and Money: Review Article," Cambridge Journal of Economics, Oxford University Press, vol. 25(2), pages 245-61, March.
  12. Hein, Eckhard, 1999. "Interest Rates, Income Shares, and Investment in a Kaleckian Model," MPRA Paper 18607, University Library of Munich, Germany.
  13. Eckhard Hein & Carsten Ochsen, 2003. "Regimes of Interest Rates, Income Shares, Savings and Investment: A Kaleckian Model and Empirical Estimations for some Advanced OECD Economies," Metroeconomica, Wiley Blackwell, vol. 54(4), pages 404-433, November.
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  16. 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, Oxford University Press, vol. 23(1), pages 103-13, January.
  17. Giancarlo Bertocco, 2001. "Is Kaldor's Theory of Money Supply Endogeneity Still Relevant?," Metroeconomica, Wiley Blackwell, vol. 52(1), pages 95-120, 02.
  18. Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 9(4), pages 383-403, December.
  19. Giuseppe Ciccarone, 1998. "Prices and Distribution in a Sraffian Credit Economy," Review of Political Economy, Taylor & Francis Journals, vol. 10(4), pages 399-413.
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  22. Schiantarelli, Fabio, 1996. "Financial Constraints and Investment: Methodological Issues and International Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 70-89, Summer.
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  24. Arestis, Philip, 1996. "Post-Keynesian Economics: Towards Coherence," Cambridge Journal of Economics, Oxford University Press, vol. 20(1), pages 111-35, January.
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