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The paradox of debt and Minsky cycle: Nonlinear effects of debt and capital and variety of capitalism

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  • Tada, Yuki

Abstract

To study the variety of financialized capitalism contingent on firms’ institutional behavior, we model the US type of shareholder-oriented capitalism with the Minskyan cycle and the Japanese type of partially fledged financialized capitalism with high firm retention rates using the paradox of debt (Steindl) cycle. The results show: 1) instability could arise when firms have a high retention rate of profit to deleverage; 2) the debt-led and the debt-burdened demand regimes can be distinguished by setting sufficiently low retention rates for the former and that of high rates for the latter; 3) the level of retention rate is important in determining the short-run condition but also sets the condition of the long-run Minsky or Steindl debt cycle while we observe secular stagnation in the accumulation rate; 4) the debt-burdened demand transforms into a long-wave cyclical growth with sufficiently high firms' animal spirits, which exhibits the possibility of demand-led cyclical growth.

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  • Tada, Yuki, 2024. "The paradox of debt and Minsky cycle: Nonlinear effects of debt and capital and variety of capitalism," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 706-729.
    • Handle: RePEc:eee:streco:v:71:y:2024:i:c:p:706-729
    DOI: 10.1016/j.strueco.2024.09.006
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    More about this item

    Keywords

    Minsky; Paradox of debt; Capitalism; Growth; Financial instability; Supercycle;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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