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Confidence and financial crisis in a post-Keynesian stock flow consistent model

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  • Edwin Le Heron

    (Sciences Po Bordeaux, SPIRIT, France)

Abstract

The paper aims at showing that one of the main channels by which the US 2007 financial crisis became a real and global economic crisis is the 'confidence channel', i.e. that the financial crisis affected firms, banks and households’ expectations and confidence, thus leading to what they were fearing. And I propose to model expectations and the state of confidence of private agents to use the indexes calculated by national statistical services from monthly polls.

Suggested Citation

  • Edwin Le Heron, 2011. "Confidence and financial crisis in a post-Keynesian stock flow consistent model," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 8(2), pages 361-387.
    • Handle: RePEc:elg:ejeepi:v:8:y:2011:i:2:p361-387
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    1. Edwin Le Heron & Tarik Mouakil, 2008. "A Post‐Keynesian Stock‐Flow Consistent Model For Dynamic Analysis Of Monetary Policy Shock On Banking Behaviour," Metroeconomica, Wiley Blackwell, vol. 59(3), pages 405-440, July.
    2. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    3. 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, Elsevier.
    4. Edwin Le Héron, 2008. "Fiscal and Monetary Policies in a Keynesian Stock-flow Consistent Model," Post-Print halshs-00388042, HAL.
    5. Julio J. Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361, National Bureau of Economic Research, Inc.
    6. repec:hal:wpspec:info:hdl:2441/2977 is not listed on IDEAS
    7. Claudio H. dos Santos & Gennaro Zezza, 2004. "A Post-Keynesian Stock-Flow Consistent Macroeconomic Growth Model: Preliminary Results," Economics Working Paper Archive wp_402, Levy Economics Institute.
    8. repec:hal:spmain:info:hdl:2441/2977 is not listed on IDEAS
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    Cited by:

    1. repec:hal:spmain:info:hdl:2441/17g7senmu38qqa09nqh9tk9hbn is not listed on IDEAS
    2. Meijers, Huub & Muysken, Joan & Piccillo, Giulia, 2023. "Expectations and the stability of stock-flow consistent models," MERIT Working Papers 2023-024, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Greg Philip Hannsgen, 2021. "A Minimal Probabilistic Minsky Model: 3D Continuous-Jump Dynamics," Working Papers PKWP2026, Post Keynesian Economics Society (PKES).
    4. LE HERON Edwin & MAROUANE Amine, 2015. "A history of contemporary post Keynesian SFC model," Cahiers du GREThA (2007-2019) 2015-15, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    5. Nikolaidi, Maria, 2014. "Margins of safety and instability in a macrodynamic model with Minskyan insights," Structural Change and Economic Dynamics, Elsevier, vol. 31(C), pages 1-16.
    6. Roberto Veneziani & Luca Zamparelli & Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    7. Steve Keen, 2013. "Predicting the ‘Global Financial Crisis’: Post-Keynesian Macroeconomics," The Economic Record, The Economic Society of Australia, vol. 89(285), pages 228-254, June.
    8. Angel Asensio & Sébastien Charles & Edwin Le Héron & Dany Lang, 2011. "Recent developments in Post-Keynesian modeling [Los desarrollos recientes de la macroeconomía post-keynesiana]," Post-Print halshs-00664867, HAL.
    9. Greg Philip Hannsgen & Tai Young-Taft, 2021. "Expectational and Portfolio-Demand Shifts in a Keynesian Model of Monetary Growth Fluctuations," Working Papers PKWP2112, Post Keynesian Economics Society (PKES).
    10. Edwin Le Heron & Nicolas Yol, 2019. "The macroeconomic effects of migrants' remittances in Moldova: a stock–flow consistent model," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 16(1), pages 31-54, April.
    11. Asensio, Angel & Charles, Sébastien & Lang, Dany & Le Heron, Edwin, 2011. "Les développements récents de la macroéconomie post-keynésienne," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 10.
    12. Özgür Bayram SOYLU, 2020. "A simple model of developing countries: financing the current account deficit Abstract: A stock flow consistent model provides a monetary and financial framework to macroeconomics. It clearly shows th," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 11, pages 123-145, June.
    13. Gross, Marco, 2022. "Beautiful cycles: A theory and a model implying a curious role for interest," Economic Modelling, Elsevier, vol. 106(C).
    14. Sercin Sahin, 2021. "Consumer confidence, consumption, and macroeconomic fluctuations: A systemic stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 868-904, November.
    15. Jessica Reale, 2022. "Interbank market and funding liquidity risk in a stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 734-769, July.
    16. Greg Hannsgen & Tai Young-Taft, 2015. "Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility," Economics Working Paper Archive wp_839, Levy Economics Institute.
    17. Greg Philip Hannsgen, 2021. "A Minimal Probabilistic Minsky Model: 3D Continuous-Jump Dynamics," Working Papers PKWP2102, Post Keynesian Economics Society (PKES).
    18. repec:spo:wpmain:info:hdl:2441/17g7senmu38qqa09nqh9tk9hbn is not listed on IDEAS
    19. Jorge Garcia-Arias & Eduardo Fernandez-Huerga & Ana Salvador, 2013. "European Periphery Crises, International Financial Markets, and Democracy," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(4), pages 826-850, October.

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    More about this item

    Keywords

    confidence; financial crisis; stock-flow-consistent modelling;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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