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Firms’ Retention Behavior, Debt, and Macroeconomic Dynamics

Yun Kim and Alan G Isaac ()

No 2017_04, Working Papers from University of Massachusetts Boston, Economics Department

Abstract: Building upon Isaac and Kim (2013) and Charles (2008a), we incorporate endogenous retention behavior of firms into a a stock-flow consistent neo-Kaleckian growth model with both consumer and corporate debt. We adopt a logistic endogenous retention ratio, which is a realistic representation of firms retention behavior. We then explore the macrodynamic ramifications. Consumer credit expansion can enhance the stability of the system. Higher interest has a destabilizing effect, and can induce a rather dramatic instability. More prudent firms financial behavior by relying more on their retained earnings reduces the stability of the system although it promotes growth.

Keywords: Consumer debt; corporate debt; endogenous retention ratio; stability (search for similar items in EconPapers)
JEL-codes: E12 E44 O41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2017-09
New Economics Papers: this item is included in nep-gro and nep-mac
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