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Margins of safety and instability in a macrodynamic model with Minskyan insights

Margins of safety and instability in a macrodynamic model with Minskyan insights

Nikolaidi, Maria (2014) Margins of safety and instability in a macrodynamic model with Minskyan insights. Structural Change and Economic Dynamics, 31. ISSN 0954-349X (doi:https://doi.org/10.1016/j.strueco.2014.07.001)

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Abstract

This paper develops a stock-flow consistent macrodynamic model in which firms’ and banks’ desired margins of safety play a central role in macroeconomic performance. The model incorporates an active banking sector and pays particular attention to the leverage of both firms and banks. It is shown that the endogenous change in the desired margins of safety of firms and banks is likely to transform an otherwise stable debt-burdened economy into an unstable one. The endogeneity of the desired margins of safety can also produce, under certain conditions, investment and leverage cycles during which investment and leverage move both in the same and in the opposite direction. Furthermore, the paper investigates the potential stabilising role of fiscal policy. It is indicated that fiscal policy can reduce the destabilising forces in the macroeconomy when government expenditures adjust adequately to variations in the divergence between the actual and the desired margins of safety.

Item Type: Article
Additional Information: [1] Author's Accepted Manuscript is attached to GALA record. NOTE from Publisher (Elsevier B.V.): Please cite this article as: Nikolaidi, M.,Margins of safety and instability in a macrodynamic model with Minskyan insights, Structural Change and Economic Dynamics (2014), http://dx.doi.org/10.1016/j.strueco.2014.07.001. [2] Publisher's (Elsevier B.V.) note to users: Accepted manuscripts are Articles in Press that have been peer reviewed and accepted for publication by the Editorial Board of this publication. They have not yet been copy edited and/or formatted in the publication house style, and may not yet have the full ScienceDirect functionality, e.g., supplementary files may still need to be added, links to references may not resolve yet etc. The text could still change before final publication. [3] NOTICE: this is the author’s version of a work that was accepted for publication in Structural Change and Economic Dynamics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Structural Change and Economic Dynamics, 31 (2014) DOI 10.1016/j.strueco.2014.07.001.
Uncontrolled Keywords: margins of safety, instability, leverage ratios, Minskyan macroeconomic analysis
Subjects: H Social Sciences > HB Economic Theory
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Related URLs:
Last Modified: 16 May 2019 07:43
Selected for GREAT 2016: None
Selected for GREAT 2017: GREAT b
Selected for GREAT 2018: None
Selected for GREAT 2019: GREAT 4
URI: http://gala.gre.ac.uk/id/eprint/11870

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