Global Imbalances and Financial Capitalism

Stock-Flow-Consistent Modelling

Jacques Mazier

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9780429795077
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

The past few decades have witnessed the emergence of economic imbalances at the world level and within the euro zone. The failure of mainstream economics to accurately predict financial crises, or model the effects of finance-led growth, highlights the need for alternative frameworks. A key text, Global Imbalances and Financial Capitalism: Stock-Flow-Consistent Modelling demonstrates that Stock-Flow-Consistent models are well adapted to study this growth regime due to their ability to analyse the real and financial sides of the economy in an integrated way. This approach is combined with an analysis of exchange rate misalignments using the Fundamental Equilibrium Exchange Rate (FEER) methodology, which serves to give a synthetic view of international imbalances. Together, these models describe how global and regional imbalances are created, as well as suggest appropriate tools through which they may be reduced. The book also considers alternative economic policies in the euro zone (international risk sharing, fiscal federalism, eurobonds, European investments, a multispeed euro zone) alongside alternative monetary policies. In particular, it examines the possibilities of using SDR (Special Drawing Rights) as a reserve asset to be issued to fight a global recession, to support the development of low-income countries, or as an anchor to improve global monetary stability. This text will be of interest to students, scholars, and researchers of economic theory and international monetary economics. It will also appeal to professional organisations who supervise international relations.

Part I

Finance-led regime and global imbalances

A first glance

1A simple finance-led SFC model

Jacques Mazier and Luis Reyes

Introduction

The finance-led growth regime corresponds to the current stage of capitalism. It first settled in the United States and the United Kingdom at the beginning of the 1980s and spread in most of the countries with national specificities (Aglietta, 1998; Boyer, 2000). The main characteristic of this regime is the new corporate governance that prioritizes shareholders and financial accumulation at the expense of productive investment, with a large use of leverage effects. Rising income inequality has come along with these trends. These transformations have generated macroeconomic instability and weak growth despite the recovery of profits high levels. Financial accumulation and increasing inequalities limit domestic demand which can only be sustained by rising indebtedness. This regime is regulated by periodic financial crisis with an instability mainly caused by over-indebtedness and wealth effects. SFC models are well suited to study this growth regime as they analyse the real and financial sides of the economy simultaneously, taking into account the balance sheet constraints and revaluation effects.

This chapter, based on Mazier and Reyes (2014), presents a simple SFC model for a closed economy. First, we describe the stylised facts for France which is a representative country of the finance-led growth regime. Second, we give account of the most relevant works on SFC models and their ability to describe the real and financial cycles, with a discussion on firms’ closure either via debt or by new issuance of equities. Third, the model is presented rather in detail, given that the same structure is used in the other chapters of the book. Fourth, the dynamics of the model are studied with the help of simulations and shocks on th...

Table of contents

• Cover
• Half Title
• Series Information
• Title Page
• Copyright Page
• Contents
• Contributors
• Introduction
• Part I Finance-led regime and global imbalances: A first glance
• Part II European challenges
• Part III Enhancing regional and international monetary stability
• References
• Index