Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105873
Authors: 
Hein, Eckhard
Year of Publication: 
2005
Series/Report no.: 
IMK Working Paper 5/2005
Abstract: 
In the present paper we explicitly introduce interest payments and debt into a Kaleckian distribution and growth model with an investment function very close to Kalecki's original writings. The effects of interest rate variations on the short-run equilibrium values of capacity utilisation, capital accumulation and the rate of profit are derived, and the long run effects on the equilibrium debt-capital-ratio are also analysed. It is shown, that the effects of interest variations on the endogenously determined equilibrium values of the model do not only depend on the parameter values in the saving and investment functions but also on the interest elasticity of distribution and in some cases on initial conditions with respect to the interest rate and the debt-capital-ratio. If the conditions for short-run ‘normal' effects of interest rate variations are given, the economy will be characterised by a long-run unstable debt-capital-ratio and by the macroeconomic ‘paradox of debt'. These results are similar to other models and hint to the robustness of Kaleckian ‘monetary' models of distribution and growth with respect to the specification of the investment function.
Subjects: 
Interest rate
debt
capital accumulation
Kaleckian model
JEL: 
E12
E22
E25
E44
O42
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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