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Firms’ Retention Behavior, Debt, and Macroeconomic Dynamics

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  • Yun K. Kim
  • Alan G. Isaac

Abstract

Building upon Isaac and Kim (2013) and Charles (2008a), we incorporate endogenous retention behavior of firms into a a stock-flow consistent neo-Kaleckian growth model with both consumer and corporate debt. We adopt a logistic endogenous retention ratio, which is a realistic representation of firms retention behavior. We then explore the macrodynamic ramifications. Consumer credit expansion can enhance the stability of the system. Higher interest has a destabilizing effect, and can induce a rather dramatic instability. More prudent firms financial behavior by relying more on their retained earnings reduces the stability of the system although it promotes growth.

Suggested Citation

  • Yun K. Kim & Alan G. Isaac, 2017. "Firms’ Retention Behavior, Debt, and Macroeconomic Dynamics," Working Papers 2017_04, University of Massachusetts Boston, Economics Department.
    • Handle: RePEc:mab:wpaper:2017_04
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Consumer debt; corporate debt; endogenous retention ratio; stability;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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