The authors outline and simulate a stylized Post-Keynesian two-country stock–flow consistent model to demonstrate the interconnection of three of the main features/outcomes of finance-dominated capitalism, namely worsening income distribution for the bottom 90 per cent of households, the rise of international imbalances, and the build-up of financial fragility. In the model, two basic regimes emerge, depending on the institutional setting of the respective model economy: the debt-led private demand boom regime and the export-led mercantilist regime. The authors demonstrate the complementarity and interdependence of these two regimes and show how this constellation transformed after a crisis into the domestic demand-led regime stabilized by government deficits, on the one hand, and export-led mercantilist regimes, on the other, depending on the required deleveraging of private household debt, distributional developments and fiscal policy.
Contributor Notes
Corresponding author: Franz Prante, University of Duisburg-Essen, Lotharstr. 65, 47057 Duisburg, Germany; email: franz.prante@uni-due.de.
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- JEL codes
- 1 INTRODUCTION
- 2 THE SFC SIMULATION MODEL
- 3 THE EXTREME REGIMES BEFORE THE CRISIS AND ENDOGENOUSLY GENERATED FRAGILITIES
- 4 THE REGIMES EMERGING IN THE COURSE OF THE CRISIS AND AFTER, AND THE DRIVERS OF REGIME CHANGE
- 5 CONCLUSIONS
- ACKNOWLEDGEMENTS
- REFERENCES
- Appendix 1 EXTENDED LIST OF MODEL EQUATIONS
- Appendix 2 BASELINE PARAMETER CONSTELLATION AND SHOCK SEQUENCES FOR SCENARIOS
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