Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144608
Authors: 
Lojak, Benjamin
Year of Publication: 
2016
Series/Report no.: 
BERG Working Paper Series 112
Abstract: 
Recent evidence on the development of corporate debt suggests that firms' leverage ratios increased enormously during the past few decades. Taking into account firms financing concerns, the present work provides a dynamic disequilibrium model that is able to generate cyclical patterns of various key economic variables. One of the main features of the model is that a dynamic law governing the evolution of investor sentiment determines firms' investment through their sales expectations according to recurrent and endogenously determined waves of optimism and pessimism. The model further incorporates commercial banks providing loans to firms with the respective lending rate exhibiting a mark-up that changes endogenously with the evolution of the firms' indebtedness. It is shown that the model generates sentiment-driven business cycle fluctuations for two economic environments that exist contemporaneously: a "normal-" and "high-indebted" regime.
Subjects: 
Minsky Cycles
De-Leveraging
Paradox of Debt
Financial Accelerator
Business Sentiment
Kaleckian Model
Disequilibrium Model
ISBN: 
978-3-943153-31-6
Document Type: 
Working Paper

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