Inside Debt and Economic Growth: A Cambridge - Kaleckian Analysis
Inside debt is a fundamental feature of capitalist economies. This paper examines the growth effects of consumer and corporate debt using a Cambridge - Kaleckian growth framework. According to the Cambridge - Kaleckian model inside debt has an ambiguous effect on growth. This is counter to the intuition of static short-run macro models in which higher debt levels lower economic activity and shows intuitions derived from short run macroeconomics do not always carry over to growth theory. Growth is faster in endogenous money economies than in pure credit economies, ceteris paribus. That is because lending in endogenous money economies creates money wealth that increases spending and lowers saving. Interest payments from debtors to creditors are a critical channel whereby debt affects growth. In the consumer debt model this interest transfer mechanism exerts a negative influence on growth. However, in the corporate debt model the transfer can raise growth if the marginal propensity to consume of creditor households exceeds the marginal propensity to invest of firms.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: Hans-Böckler-Straße 39, 40476 Düsseldorf|
Phone: +49 211 7778 234
Fax: +49 211 7778 4234
Web page: http://www.imk-boeckler.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Engelbert Stockhammer, 2000.
"Financialization and the Slowdown of Accumulation,"
geewp14, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
- Lavoie, M., 1992.
"The Kaleckian Model of Growth and Distribution and its Neo-Ricardian and Neo-Marxian Critiques,"
9201e, University of Ottawa, Department of Economics.
- Lavoie, Marc, 1995. "The Kaleckian Model of Growth and Distribution and Its Neo-Ricardian and Neo-Marxian Critiques," Cambridge Journal of Economics, Oxford University Press, vol. 19(6), pages 789-818, December.
- Palley, Thomas I., 2008. "Keynesian models of deflation and depression revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 167-177, October.
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994.
"The Financial Accelerator and the Flight to Quality,"
94-24, C.V. Starr Center for Applied Economics, New York University.
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1994. "The Financial Accelerator and the Flight to Quality," NBER Working Papers 4789, National Bureau of Economic Research, Inc.
- Simon Gilchrist & Ben S. Bernanke & Mark Gertler, 1994. "The financial accelerator and the flight to quality," Finance and Economics Discussion Series 94-18, Board of Governors of the Federal Reserve System (U.S.).
- Palley, Thomas I, 1996. "Inside Debt, Aggregate Demand, and the Cambridge Theory of Distribution," Cambridge Journal of Economics, Oxford University Press, vol. 20(4), pages 465-74, July.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999.
"The financial accelerator in a quantitative business cycle framework,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
- Caskey, John & Fazzari, Steven M, 1987. "Aggregate Demand Contractions with Nominal Debt Commitments: Is Wage Flexibility Stabilizing?," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 583-97, October.
- Eckhard Hein & Till van Treeck, 2007. "'Financialisation' in Kaleckian/Post-Kaleckian models of distribution and growth," IMK Working Paper 07-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
- Peter Skott & Soon Ryoo, 2008.
"Macroeconomic implications of financialisation,"
Cambridge Journal of Economics,
Oxford University Press, vol. 32(6), pages 827-862, November.
- J. Bradford De Long & Lawrence H. Summers, 1985.
"Is Increased Price Flexibility Stabilizing?,"
NBER Working Papers
1686, National Bureau of Economic Research, Inc.
- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
- Tobin, James, 1975.
"Keynesian Models of Recession and Depression,"
American Economic Review,
American Economic Association, vol. 65(2), pages 195-202, May.
- Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
- Marc Jarsulic, 1989. "Endogenous Credit and Endogenous Business Cycles," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(1), pages 35-48, October.
When requesting a correction, please mention this item's handle: RePEc:imk:wpaper:2-2009. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Nemitz)
If references are entirely missing, you can add them using this form.