Distribution, capital intensity and public debt-to-GDP ratio: an input output—stock flow consistent model

Lorenzo Domenico (), Maria Cristina Barbieri Góes and Ettore Gallo
Additional contact information
Lorenzo Domenico: Catholic University of the Sacred Heart
Maria Cristina Barbieri Góes: University of Bergamo

Economia Politica: Journal of Analytical and Institutional Economics, 2024, vol. 41, issue 2, No 4, 395-416

Abstract: Abstract The paper analyzes the relationship between the interest rate and the public debt-to-GDP ratio through the lens of the Classical-Keynesian approach. We focus on the value dimension as a transmission channel of monetary policy, modeling how a change in the interest rate set by the central bank affects the economy’s capital intensity and, in turn, debt ratios. We do so by developing a Stock-Flow Consistent Supermultiplier model (SFC-SM) based on a simplified Input–Output structure of production, showing that the effect of an increase in the interest rate on public debt-to-GDP ratio will depend on the impact exerted by the shock on the capital intensity through changes in relative prices. Lastly, we calibrate the model, showing the possible emergence of reverse capital deepening; past a threshold, any base rate hike produces an increase in the public debt-to-GDP ratio by decreasing the capital intensity of the economy.

Keywords: SFC modeling; Income distribution; Public debt-to-GDP ratio; Input–output (search for similar items in EconPapers)
JEL-codes: C67 E11 E12 E31 E52 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40888-023-00318-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:epolit:v:41:y:2024:i:2:d:10.1007_s40888-023-00318-7

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40888

DOI: 10.1007/s40888-023-00318-7

Access Statistics for this article

Economia Politica: Journal of Analytical and Institutional Economics is currently edited by Alberto Quadrio Curzio

More articles in Economia Politica: Journal of Analytical and Institutional Economics from Springer, Fondazione Edison
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().