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Distribution, capital intensity and public debt-to-GDP ratio: an input output—stock flow consistent model

Author

Listed:
  • Lorenzo Domenico

    (Catholic University of the Sacred Heart)

  • Maria Cristina Barbieri Góes

    (University of Bergamo)

  • Ettore Gallo

    (University of Bari Aldo Moro)

Abstract

The paper analyzes the relationship between the interest rate and the public debt-to-GDP ratio through the lens of the Classical-Keynesian approach. We focus on the value dimension as a transmission channel of monetary policy, modeling how a change in the interest rate set by the central bank affects the economy’s capital intensity and, in turn, debt ratios. We do so by developing a Stock-Flow Consistent Supermultiplier model (SFC-SM) based on a simplified Input–Output structure of production, showing that the effect of an increase in the interest rate on public debt-to-GDP ratio will depend on the impact exerted by the shock on the capital intensity through changes in relative prices. Lastly, we calibrate the model, showing the possible emergence of reverse capital deepening; past a threshold, any base rate hike produces an increase in the public debt-to-GDP ratio by decreasing the capital intensity of the economy.

Suggested Citation

  • Lorenzo Domenico & Maria Cristina Barbieri Góes & Ettore Gallo, 2024. "Distribution, capital intensity and public debt-to-GDP ratio: an input output—stock flow consistent model," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(2), pages 395-416, July.
    • Handle: RePEc:spr:epolit:v:41:y:2024:i:2:d:10.1007_s40888-023-00318-7
    DOI: 10.1007/s40888-023-00318-7
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    SFC modeling; Income distribution; Public debt-to-GDP ratio; Input–output;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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