Financialisation and Crisis in an Agent Based Macroeconomomic Model

Abstract

In the present paper we analyse the role of dividends distributed by firms and banks, highlighting the effects of their increase on financial instability and macroeconomic dynamics. During the last decades, the financialisation of nonfinancial corporations has been characterised by a shift from a “retain and reinvest” strategy to a “downsize and distribute” strategy. We will investigate such a phenomenon by varying some of the model parameters, so simulating firms’ and banks’ behaviours under alternative settings. On the one hand, more distributed dividends increases agents’ wealth and thus consumption may rise due to a wealth-effect. On the other hand, increasing dividends reduce firms’ net worth that may result in a strong dependence of firms’ production on bank credit; at the same time, if also banks distribute more dividends, then banks’ capital decreases and this may result in credit rationing. As we will see, financialisation through increasing dividends impacts financial (in)stability and income distribution, with relevant consequences on macroeconomic dynamics.

Keywords: agent-based macroeconomics, business cycle, leverage, payout policy, financialisation, crisis

JEL Classification: E32, C63, G35