Expectation Dynamics, Financing of Investment and Business Cycles

Reiner Franke and Willi Semmler

Chapter 17 in Profits, Deficits and Instability, 1992, pp 330-348 from Palgrave Macmillan

Abstract: Abstract Recently, there have been several papers originating from Keynesian macroeconomic theory and Kalecki’s work on the business cycle that have attempted to integrate monetary and financial variables in macrodynamic models.1 This development seems to overcome the unfortunate separation of financial and real aggregate magnitudes present in macrodynamic modelling. Moreover, due to the emphasis given to the role of financial markets for macro fluctuations, the formation of expectations has again been stressed as an important aspect in determining asset holding and investment decisions that generate macroeconomic fluctuations.2 This chapter also seeks to make a contribution to this line of research. However, expectations or as we prefer to call them, a general state of confidence, will not be taken as given as in the Keynesian sense of ‘animal spirits’, but will be assumed as endogenous instead.

Keywords: Interest Rate; Business Cycle; Capital Stock; Commercial Bank; Equity Financing (search for similar items in EconPapers)
Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-11786-4_17

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DOI: 10.1007/978-1-349-11786-4_17

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