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Cambridge Journal of Economics Advance Access published online on April 15, 2008
Cambridge Journal of Economics, doi:10.1093/cje/ben012
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© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Macroeconomic implications of financialisation

Peter Skott and Soon Ryoo*

Address for correspondence: Peter Skott, Department of Economics, University of Massachusetts, Amherst, MA 01003, USA; email: pskott{at}econs.umass.edu.

A growing literature suggests that ‘financialisation’ may weaken the performance of non-financial corporations and constrain the growth of aggregate demand. This paper uses two alternative approaches—one derived from Skott and one from Lavoie and Godley—and two different settings—a labour-constrained setting and a dual-economy setting—to evaluate some of the claims that have been made. Our analysis, which pays explicit attention to financial stock–flow relations, suggests that the qualitative effects of ‘financialisation’ are insensitive to the precise specification of household saving behaviour but depend critically on the labour market assumptions (labour-constrained versus dual) and the specification of the investment function (Harrodian versus Kaleckian).

Key Words: Financialisation • Stock-flow consistency • Retention rate • External finance • New issue

JEL classifications: E12, E21, E44

* University of Massachusetts, Amherst


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