On the Systemic Fragility of Finance‐Led Growth

29 Pages Posted: 8 Jan 2015

See all articles by Amit Bhaduri

Amit Bhaduri

Jawaharlal Nehru University

Srinivas Raghavendra

National University of Ireland, Galway (NUIG)

Vishwesha Guttal

Indian Institute of Science (IISc)

Date Written: February 2015

Abstract

The paper sets up a model of economic crisis by investigating the role played by movement in asset price as a driver of the dynamic interaction between the real and the financial sectors. Such movement influences income determination in the real economy in the short period through aggregate demand leading to the emergence of two macroeconomic regimes. A short period flow model, underpinned by the stock flow consistent accounting framework, is developed to formalize the dynamics of interaction between real and financial sectors mediated by movement in asset price, generates bistability, abrupt crashes, and systemic fragility in the macroeconomic regimes.

Suggested Citation

Bhaduri, Amit and Raghavendra, Srinivas and Guttal, Vishwesha, On the Systemic Fragility of Finance‐Led Growth (February 2015). Metroeconomica, Vol. 66, Issue 1, pp. 158-186, 2015, Available at SSRN: https://ssrn.com/abstract=2546545 or http://dx.doi.org/10.1111/meca.12070

Amit Bhaduri (Contact Author)

Jawaharlal Nehru University

Vasant Vihar
Jawaharlal Nehru University
New Delhi, DE Delhi
India

Srinivas Raghavendra

National University of Ireland, Galway (NUIG) ( email )

Department of Economics, NUI Galway
Galway, Co. Galway
Ireland

Vishwesha Guttal

Indian Institute of Science (IISc)

Bangalore, IN 560012
India

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