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Cambridge Journal of Economics Advance Access originally published online on January 16, 2007
Cambridge Journal of Economics 2007 31(4):563-580; doi:10.1093/cje/bel042
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Macrodynamics of debt regimes, financial instability and growth

Gilberto Tadeu Lima and Antonio J. A. Meirelles*

* University of São Paulo and State University of Campinas, Brasil, respectively

Address for correspondence: Gilberto Tadeu Lima, University of São Paulo, Department of Economics, São Paulo, Brazil; e-mail: giltadeu{at}usp.br

This paper develops a post-Keynesian dynamic model of capacity utilisation and growth, in which the supply of credit-money is endogenous and firms' debt position—and thus the financial fragility of the economy à la Hyman Minsky—is explicitly modelled. The interest rate is set by banks as a markup over a base rate exogenously determined by the monetary authority. The banking markup varies with changes in capacity utilisation, while the debt ratio varies with changes in the rates of interest, capital accumulation and growth. Regarding dynamics, it is shown the possibility of relating the stability properties of a system with the interest rate and the debt ratio as state variables to the prevailing Minskyan regime—hedge, speculative or Ponzi.

Key Words: Debt regimes • Financial instability • Growth

JEL classifications: E12, E22

Manuscript received October 17, 2004; final version received July 17, 2006.


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