The Stagnation-Financialization Paradox? Macro-Finance Agent-Based Model with Heterogeneous Expectations

ExSIDE Working Paper No. 26-2020

34 Pages Posted: 12 Aug 2020 Last revised: 6 Jul 2021

See all articles by Enrico Maria Turco

Enrico Maria Turco

Catholic University of Milan; University of Amsterdam

Date Written: October 1, 2019


Building a macro-finance agent-based model with credit and stock market, we investigate how the increasing role of speculative investors in the ownership structure affects managers’ planning horizons and R&D investment-buybacks decisions and, consequently, the resulting macro-economic dynamics in terms of growth, instability and crisis. Drawing on Keynes’s (1936) characterization of financial market and Minsky’s (1992) notion of money manager capitalism, the idea is that when the stock market is dominated by a speculative sentiment, managers tend to internalize the short-term view of speculative investors and accommodate their demand for high equity returns, by diverting corporate resources from R&D investment towards share buybacks in order to boost the stock price. Simulation results show that the increasing orientation towards shareholder value leads to a lower and less volatile growth in the real sec- tor, but a higher growth in the financial sector, giving rise to what we call a ‘stagnation-financialization paradox’. Yet, in order for this scenario to manifest, it is necessary that the configuration of ownership structure and the degree of market concentration are such that the corporate sector can generate and then distribute a sufficient amount of profits to support the stock price, despite a slowing real economy. Conversely, if the fraction of speculators is too large, the economic growth is so low that the fall in profits drags buybacks spending down, and so does the stock market.

Keywords: Macroeconomic, Agent-Based Model, Heterogeneous Expectations, Finance, Innovation, Stock Buybacks

JEL Classification: C63, E32, E6, 03, G3

Suggested Citation

Turco, Enrico Maria and Turco, Enrico Maria, The Stagnation-Financialization Paradox? Macro-Finance Agent-Based Model with Heterogeneous Expectations (October 1, 2019). ExSIDE Working Paper No. 26-2020, Available at SSRN: or

Enrico Maria Turco (Contact Author)

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB

Catholic University of Milan ( email )

1 Largo A. Gemelli
Milano (Milan), MI Milano 20123

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