The paradox of debt and Minsky cycle: Nonlinear effects of debt and capital and variety of capitalism

Yuki Tada

Structural Change and Economic Dynamics, 2024, vol. 71, issue C, 706-729

Abstract: To study the variety of financialized capitalism contingent on firms’ institutional behavior, we model the US type of shareholder-oriented capitalism with the Minskyan cycle and the Japanese type of partially fledged financialized capitalism with high firm retention rates using the paradox of debt (Steindl) cycle. The results show: 1) instability could arise when firms have a high retention rate of profit to deleverage; 2) the debt-led and the debt-burdened demand regimes can be distinguished by setting sufficiently low retention rates for the former and that of high rates for the latter; 3) the level of retention rate is important in determining the short-run condition but also sets the condition of the long-run Minsky or Steindl debt cycle while we observe secular stagnation in the accumulation rate; 4) the debt-burdened demand transforms into a long-wave cyclical growth with sufficiently high firms' animal spirits, which exhibits the possibility of demand-led cyclical growth.

Keywords: Minsky; Paradox of debt; Capitalism; Growth; Financial instability; Supercycle (search for similar items in EconPapers)
JEL-codes: B52 D21 E12 E32 (search for similar items in EconPapers)
Date: 2024
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Working Paper: The paradox of debt and Minsky cycle: Nonlinear effects of debt and capital, and variety of capitalism (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:71:y:2024:i:c:p:706-729

DOI: 10.1016/j.strueco.2024.09.006

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