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Explaining persistent cycles in a short-run context: firms’ propensity to invest and omnipotent shareholders

Charles, Sébastien (2009): Explaining persistent cycles in a short-run context: firms’ propensity to invest and omnipotent shareholders.

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Abstract

In this article, we develop a standard short-run Kaleckian macromodel. First, we study the stability of equilibrium and make some comparative static exercises. Then, we take into account different specifications for an endogenous propensity to invest and systematically analyze the short-run dynamics of the model. We show that when firms’ managers adopt abnormal behaviours due to pressures from shareholders regarding the propensity to invest the system exhibits persistent cycles and chaotic trajectories. The analysis emphasizes that, even in the short-run, shareholders may generate instability which represents a serious threat that should not be underestimated for a capitalist economy.

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