Fragile New Economy: Intangible Capital, Corporate Savings Glut, and Financial Instability
78 Pages Posted: 25 Apr 2015 Last revised: 23 Mar 2023
Date Written: April 25, 2015
The transition towards an intangible-intensive economy reshapes financial system by creating a self-perpetuating savings glut in the production sector. As intangibles become increasingly important, firms hoard liquidity to finance investment in intangibles of limited pledgeability. Firms' savings feed cheap leverage to financial intermediaries and allow intermediaries to bid up asset prices, which in turn encourages firms to save more for asset creation. This paper develops a macro-finance model that offers a coherent account of the rising corporate savings, debt-fueled growth of intermediaries, declining interest rates, and rising asset valuation. Along these secular trends, endogenous financial risk accumulates.
Keywords: Intangible Capital, Asset Shortage, Savings Glut, Liquidity Creation, Endogenous Risk, Interest rate, Financial Intermediaries
JEL Classification: D25, E22, E32, E41, E43, E44, G01, G20, G30
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