Financialized growth regime: lessons from Stock Flow Consistent models

Abstract

The financialized growth rate that settled in most developed economies in the nineties is characterized by the quest for higher shareholders’ profitability, increased financial accumulation at the expense of productive accumulation and the use of leverage effects. Stock Flow Consistent models à la Godley and Lavoie are well suited to analyze this growth regime. We retain two types of closures for non financial companies, either an indebtedness norm or an own funds norm. The paper studies the dynamics of these two models with the aid of simulations and supply or demand shocks, or stemming from the financial sector. Their fitness to take into account financial cycles and over indebtedness typical of financialized growth may thus be analyzed. The model with the indebtedness norm generates short-term financial cycles which appear as the regulation mode of this growth regime with an asset price serving as an adjustment variable. The model with the own funds norm generates a financial bubble with growing indebtedness and no self-stabilizing mechanism.

Financialization at the international level: evidence from emerging market economies

“…This development is known in the literature as a change in management strategies from "retaining and investing" profits to "downsizing and distributing" them (Lazonick and O'Sullivan, 2000). Indeed, this short-termism of management would have decreased managements' animal spirits with respect to real investment, and caused the draining of internal means of finance for allowing higher dividend payments and share (5) For examples of the working of "financialized" firms and the potential consequences of growth on a Stock Flow Consistent framework, see Reyes and Mazier (2014) and Do Nascimento and Macedo e Silva (2016). buybacks in order to boost stock prices and shareholder valuewith negative effects on growth (Hein, 2011).…”

The Monetary Circuit in the Age of Financialisation: A Stock‐Flow Consistent Model with A Twofold Banking Sector

“…These works have focused on a variety of changes entailed by the increasing power of financial markets and institutions, such as: the growing shareholder value orientation of corporate management; the reduction in the rate of retention of profits; the increase in the propensity of households to hold equities and other financial assets; the increase in household loans to disposable income (or to wealth) ratio; the financial asset inflation; the change in portfolio preferences; and the change in corporate norms (e.g. Lavoie, ; Van Treeck, ; Hein and Van Treeck, ; Michell and Toporowski, ; Caverzasi and Godin, ; Reyes and Mazier, ). While these changes are certainly worth being examined and, in fact, the above contributions are all of great value, we take a slightly different perspective.…”

Financialization and its implications on the determination of exchange rates of emerging market economies

“…Although the main focus of the literature is on reinvestment and capital accumulation, financialization could also have negative impacts on growth through a decreased potential to innovate and by worsening distribution. Minsky (1990) calls attention to the former: as liabilities' structures pledge a major part of cash flows, venture capital might be enough for funding smaller innovative efforts, but not the financial investment required by capital needs 49 For an example of the working of "financialized" firms and the potential consequences of growth on a Stock Flow Consistent model, see Reyes and Mazier (2014). 50 Stockhammer (2004) does not find evidence of such a process in Germany.…”