Finance and Macroeconomics: The Preponderance of the Financial Cycle

Michel Aglietta

Revue de l'OFCE, 2018, vol. N° 157, issue 3, 197-224

Abstract: The representation of macroeconomics, ostensibly rooted in microeconomic fundamentals, is that of a representative agent, equipped with perfect information, rationally anticipating the fundamental value of assets in a perfectly competitive market. In this model finance is efficient and as a corollary money is neutral. This set of assumptions makes it logically impossible to have an endogenous systemic crisis, which involves instead a generalized flaw in market coordination. An alternative foundation involves grounding macroeconomics in the mimetic competition that makes money the primary institution of the economy. In this model, coordination through finance is not based on fundamental values, but on liquidity. But the liquidity of the markets is itself the polarizing effect of a mimetic process. It is established by a market convention that is inherently unstable. As a result, the financial systems organized by markets propagate shocks according to a momentous logic produced by the interaction of indebtedness and the movement of asset prices. Its macroeconomic expression is the financial cycle. In this dynamic, the opacity of the system fuels the financial vulnerabilities that remain hidden in the euphoric phase and are revealed by the endogenous crisis in the financial cycle. The financial cycle has a considerable macroeconomic impact, through the financial accelerator, on the factors of production and the effective demand. Depending on the extent of the indebtedness and then the deleveraging within the cycle, a multiplicity of equilibria are possible.

Keywords: financial cycle; systemic crisis; liquidity; momentum (search for similar items in EconPapers)
Date: 2018
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