Post Keynesian Themes in Investment
Friday, Jan. 6, 2017 1:00 PM – 3:00 PM
- Chair: Daniele Tavani, Colorado State University-Fort Collins
Why has the Profit-Investment Link Become Weaker?
AbstractHistorically there has been a high correlation between profits and investment for US nonfinancial corporations. However, starting in the second half of 1980s and especially after 2000, the correlation between profits and investment has become weaker. Moreover, the correlation between debt and investment has also become weaker. This weakening of the profit-investment link is sometimes referred to as the profit-investment puzzle. There are potentially two sets of explanations for the weakening correlation: explanations focusing on nonfinancial channels and explanations focusing on financial channels. The former includes increased industrial concentration, globalization of production and relative productivity/price movements in investment and consumption goods producing sectors. The latter includes the rising shareholder value and increasing financialization of nonfinancial corporations. In this paper, we discuss to what extent these alternative channels help us understand the weakening of the profit-investment link and assess their explanatory power using macro, sectoral and firm-level data.
An Empirical Analysis of Minsky Regimes in the United States Economy
AbstractIn this paper we empirically analyze Minskian dynamics in the US economy by applying Minsky’s classifications of financing regimes to a firm-level panel of nonfinancial corporations. We first map Minsky’s definitions of hedge, speculative and Ponzi finance into firm-level data, and describe the incidence and evolution of Minksian regimes across nonfinancial corporations since the early 1970s. Second, we explore the relationship between fluctuations in the aggregate economy and firms’ likelihood of being in a fragile finance regime, and find evidence of small short-run Minsky cycles. To do so, we use linear probability models relating a firm’s probability of being Ponzi to aggregate and sectoral output gaps, and find that these output gaps – which capture variations in macroeconomic conditions exogenous to individual firms – are correlated with an increased probability that a firm is Ponzi. These results are corroborated by quantile regressions based on a continuous financial fragility measure – the interest coverage ratio – that identify differential effects of business cycles on financial fragility at different quantiles of the interest coverage distribution.
- B5 - Current Heterodox Approaches
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy