Fragile New Economy: Intangible Capital, Corporate Savings Glut, and Financial Instability

Ye Li

American Economic Review, 2025, vol. 115, issue 4, 1100-1141

Abstract: The transition toward an intangible-intensive economy reshapes financial systems 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 macrofinance model that offers a coherent account of rising corporate savings, debt-fueled growth of intermediaries, declining interest rates, and rising asset valuation. Along these secular trends, endogenous financial risk accumulates.

JEL-codes: E43 E44 G12 G21 G31 G32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/aer.20190650

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