Macroeconomic Implications of Financialisation

Abstract:     
A growing literature suggests that ‘financialisation’ may weaken the performance of non-financial corporations and constrain the growth of aggregate demand. This paper uses two alternative approaches-one derived from Skott and one from Lavoie and Godley-and two different settings-a labour-constrained setting and a dual-economy setting-to evaluate some of the claims that have been made. Our analysis, which pays explicit attention to financial stock-flow relations, suggests that the qualitative effects of ‘financialisation’ are insensitive to the precise specification of household saving behaviour but depend critically on the labour market assumptions (labour-constrained versus dual) and the specification of the investment function (Harrodian versus Kaleckian).

Keywords: Financialisation, Stock-flow consistency, Retention rate, External finance, New issue

JEL Classification: E12, E21, E44

Accepted Paper Series