Abstract. In the last few years, a number of scholars has referred to the crop of contributions of Hyman P. Minsky as required readings to understanding the tendency of the capitalist economies to fall into recurring crises. The so-called „financial instability hypothesis‟ of Minsky relies, however, on very disputed assumptions. Moreover , Minsky‟s analysis of capitalism must be updated on the basis of the deep changes which, during the last three decades, have concerned the world economy. In order to overcome these theoretical difficulties, section 2 of the paper deals with the analytical structure of the financial instability theory, showing why this latter cannot be regarded as a general theory of the business cycle. Sections 3, 4 and 5 deal with a simplified, but consistent, re-formulation of some of the most disputed aspects of Minsky‟s theory by cross-breeding it with inputs from the „Circuitist‟ approach and the current Post Keynesian literature. In sections 6 and 7 we analyze the impact of both capital-asset inflation and consumer credit on the financial „soundness‟ of the economy, within a simplified stock-flow consistent monetary circuit model. Some concluding remarks are provided in the last part of the paper (section 8).
The paper addresses the features of stock-flow consistent (SFC) canonical versions of neo-kaleckian and supermultiplier models that introduce the accumulation of debt of households and firms. The aim of this comparison is twofold: (i) to analyze under which conditions the paradox of debt emerges in the household and firms sector in each model; (ii) to evaluate the extent in which these conditions differ due to each models’ specific closure. Preliminary results suggest that the paradox of debt in firms’ sector is not a necessary result of supermultiplier models. As for households sector, the paradox of debt is a feature of the canonical supermultiplier model, yet there may be episodes of rising debt-to-income ratios and financial crisis as precipitated by policy decisions.
This chapter contribution is describing credit crunch using the stockflow consistent approach in lines of Godley and Lavoie (2007). The model deployed in this chapter describes two steady state—almost identical—economies with five sectors in each economy: households, firms (non-financial sector), government, central bank, and private banks. Each sector is assumed to acquire assets (+) and have liabilities (-). The main contribution of this model is that the private bank sector in both economies is composed of two representative banks. The reason behind this assumption is to see the contagion of credit crunch from one bank in a specific country to the other banks in the domestic country and to foreign banks connected through interbank loans.
Variables which are being used in this research are operating cash flow, EPS, EVA and also with dependent variable is stock prices. Samples in this research are twentysixth (26) manufacturing companies in BEI. Method which is used to test hypothesis in this research is non-random sampling. Before this, variables already checked with descriptive statistical test, data normality test, and classical assumption test (regression normality test, multicollinearity, heteroscedasticity, autocorrelation) which show all variables are free from multicollinearity, heteroscedasticity, autocorrelation, and also all variables are normally distributed by using SPSS 17.
This paper on the theoretical foundations of macroeconomic modelling pursues a need of conceptual clarification of a debated methodological problem concerning monetary and fiscal policies. In the first part of the paper the key features of Stock-Flow Consistent Approaches and Modern Monetary Theory are examined, in a critical perspective. These schools of thought consider the interaction between real and monetary factor at an aggregate level and re-propose with minor changes a well known system dynamics methodology, without implementing it and without even mentioning it. They rely on unrealistic and oversimplifying assumptions. Monetary circuit theories are also criticized. In the second part of the essay the guidelines of an alternative theoretical perspective are presented and their policy implications are discussed. Monetary and fiscal policy are not mutually independent. A reasoned choice of policy-mix is suggested.
This appendix provides a compact model description that emphasizes the adopted stock-flow-consistent modelling approach along the lines introduced by Godley and Lavoie (2012) and common also within post- Keynesian economics, see also Caverzasi and Godin (2015). The following tables outline the stocks (balance sheet entries) and flows (income statement entries) characterizing Eurace agents. A detailed description of agents behavioural rules in the production and consumption sectors is reported in Teglio et al. (2015), whereas Ozel et al. (2016) describes the structural and behavioural features of the housing market. Finally, it is worth noting that the stock-flow-consistent modelling approach provides a set of relevant theoretical identities at the agent, sector, and aggregate level, whose subsistence need to be numerically verified during the simulation, thus providing a very important diagnostic and validation tool for the model and its implementation.
This paper argues that the stock-flow consistent (SFC) approach to macroeconomic modelling can provide the appropriate analytical platform for linking functional with personal income distribution. The SFC approach can be traced back to the works of the Cambridge Economic Policy Group (see e.g. Cripps and Godley 1976) and the Yale group of James Tobin (see e.g. Backus et al. 1980; Tobin 1982). Although this approach was largely sidetracked from the mid 1980s to the late 1990s, it has gained a resurgence of interest over the last decade or so largely due to the works of Wynne Godley and Marc Lavoie (see, for instance, Lavoie and Godley 2001-2; Godley and Lavoie 2007).
geneous agents, necessarily the model is to be dynamic and not based on a single representative agent setting. The economy will be therefore repre- sented by a network of interconnected agents, where nodes are agents and links are trading relationships. The last main requirement, called for by the dynamical nature of the model, is stock-flow consistency, that is the correct specification of the temporal link between stocks and flows. The relevance of stock-flow consistency as a prerequisite to build realistic and reliable macroe- conomic models has been stressed not only by (now) minority schools such as the Post-Keynesian one, according to which “flows come from somewhere and go somewhere” (Godley, 1999; Godley and Lavoie, 2007), but also by prominent orthodox economists (Tobin, 1969; 1982).
The sample comprises all U.S. nonfinancial firms with data available for the period 1/1976 - 5/2000. In particular, data from the I/B/E/S summary history database is used to calculate the change in analysts’ median consensus forecasts and the forecast error (normalized by stock price). 4 Analysts’ forecasts of earnings are used since data on sales and cash flows from opera- tions are available only for a much smaller number of firms. Daily stock return data from CRSP is used to calculate stock returns that match the period of each cash flow change. Data to calculate the exchange rate returns for the Canadian Dollar (CAD), Japanese Yen (JPY), and the Euro (EUR) as well as the trade-weighted exchange rate index of the Bank of England (in U.S. Dollar per unit of foreign currency) are from Datastream. 5 Firm size is measured by mar- ket capitalization, calculated as the average of the product of the number of shares outstanding and share prices from I/B/E/S. The percentage of foreign sales is calculated as the average ratio of foreign sales relative to total sales from Compustat.
Eisdorfer ( 2007) reexamined Campbell‟s (1991) variance decomposition framework on financial distress firms. This study had taken the data from CRSP and COMPUSTAT for all companies which were registered on the American stock market between 1976 and 1996 and brought result which indicated that impact of cash-flow news and discount rate news with reference to real bankruptcies showed that cash flow news became more prominent for the most recent return before bankruptcy. Moreover, more bankruptcies happen after a market reduction due to negative shocks to expected cash flows news and encouraging shocks to discount rates news. The variability decomposition results, companies in financial distress showed the smaller sensitivity than strong companies to changes in short run equity volatility. Higher momentum prices are related with pervious non negative return and low sentiments.
Purpose Various regulatory and fiscal policy instruments are in force to reduce the amount of greenhouse gases and local pollutants emitted by private cars. The incentives operate pri- marily—or exclusively—on the newest generation of cars. But how fast will technological developments affecting new vehicle models penetrate into the car fleet? The speed at which the adverse effects of private car use will be mitigated through the normal vehicle renewal process, or through an accelerated one, carries considerable interest. Suitable modelling tools are needed. This paper aims to demonstrate the usefulness and flexibility of a bottom-up stock-flow modelling approach to private car fleet forecasting and policy analysis.
Alternative empirical models which describe the housing market from a stock- flow perspective have been provided by Topel and Rosen, Riddle, and Demers. Topel and Rosen (1988) investigate thoroughly the dynamics of residential investment in the US and conclude that residential investment responds to changes in housing prices but that the long-run supply elasticity is clearly higher than in the short run. Riddle (2004) uses a disequilibrium housing market model based on US data. She estimates an equilibrium level of the stock using demand-shifting variables. The residuals from this equation are used to explain the short-run change in prices. She then estimates an equilibrium level of the stock using housing prices and cost-shifting variables. The residuals from this second equation are then used to explain net residential investment. Demers (2005) estimates long-run equations for residential investment and housing prices in Canada as well as equations for the short-run dynamics of these variables in an equilibrium correction model setting.
log of size has significant (p = 0.02) but negatively (β = - 0.0880), ROA also significant (p = 0.01) and positive (β = 0.0065), ROE significant (p = 0.0003) and positively (β = 0.00005), sales growth significant (p = 0.054) and negatively (β = -0.048) and stock return also has significant (p = 0.0001) and negatively (β = -0.0005) relationship with free cash flow. This study is conducted in the Textile Sector of Pakistan so these result cannot be applicable to another sector of Pakistan or the textile sector of any other Country. This study is conducted for the time period of five years from 2010 to 2014. These results are for this time period and will not be applicable for the next coming five years. Because Macroeconomic factors like advancement in technology, Change of government policy etc can change the results. This study is carried out by taking the measures of profitability to size, sales growth, ROA, ROE and stock return and it cannot be same if other variables of profitability like Return on investment, Tobin Q ratio and return on capital employed will be taken. It is suggested to textile firms to maintain the free cash flow in the best way because it attracts the investors and shows that the company is performing well. They should make such policies for firms through these agency issues will not create and free cash flow will be invested for increasing the firm’s value. Managers should take decision according to the objective of the firm which is increasing the wealth of firm otherwise it can go bankrupt. The government of Pakistan should also take an interest in the growth of this sector because this sector is playing a major role in the development of the country. The problem of fuel, gas and electricity will be solved for this sector
(6), the crucial point to compute the dynamic projection is on the quantification for the meso-level structural change, which refers to the usage of the transition matrix. There are two types of target: macro-level stock variable and macro-level flow vari- able. For macro-level stock variable, the transition matrix is based on the associated micro-level stock variable. We recognize the relation that flow variable is attached with certain stock variable. For macro-level flow variable, we consider the transi- tion matrix based on the attached micro-level stock variable. In this sense, we call it stock-flow dynamic projection. We demonstrate how to derive the dynamic projec- tion by example with a data set of Japanese firms listed in Tokyo Stock Exchange.
Dividends can be associated with CFRs because SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, has historically led to classification issues with respect to dividends (Nurnberg, 2006) for firms that issue mandatorily redeemable preferred stock. Analysts’ cash flow forecasts are important for investors of firms where accounting, operating, and financing characteristics suggest that cash flows are useful in interpreting earnings and assisting in forecasting the firm’s future performance (Defond & Hung, 2003). Further, Lee (2012) finds that firms with CFRs are more likely to have at least one analyst cash flow forecast during the fiscal year. Prior research has found that bigger audit firms (i.e., Big N firms) have better financial resources, research facilities, superior technology, and more talented employees to undertake large company audits than smaller audit firms but also that they are more likely to be sued (Lys & Watts, 1994; Deis Jr & Giroux, 1992; Lennox, 1999), which can result in more conservative cash flow reporting.
Attempts have been make to generalize Markov models in order to achieve more realistic applications. Moya-Angeller(1976> considers a system which acts in an intermediate manner between the Markov and Renewal model because there are capacity constraints which place limits on the grade sizes. Once these limits are reached the surplus has to be relocated in other grades. This is an extension of the bottleneck models introduced earlier by Armitage and co- workerst1969 ). Young and Vassi1iou(1974 ) also consider the problem of capacity constraints by allowing the numbers promoted to depend not only on the stock from which they come but also on the size of the destination grade. A system in which transition probabilities are changing over time cannot adequately be described by a simple Markov chain model and requires a generalization. Kalamatianou(1984 ) and (1988) discusses a model for responding to promotion blockages where she assumes that ’pressure’ is created when there is an increase in the numbers of eligible employees that are passed over for promotion. When managers are faced with a high ’pressure* for promotion they respond by changing the promotion policy.
There are other indirect channels as well where the reduction of economic well being, in our case due to the loss in stock and flow of human capital, would also lead to environmental degradation. This is substantiated by the growth models presented by Robert Barro (1997 and 2001). His findings show that education permanently increases the efficiency of the labor force and this human capital also facilitates the absorption of superior technologies. The loss of infrastructural capacity and flow of potential human capital would also impact the capacity of people to further produce and reap the benefits of human development. Philippestins (2001) estimated a positive strong correlation in natural resource abundance and human capital, and identified that excess returns from rich natural resources lead to reinvestment in higher human capital investments. Therefore the estimate of human capital loss in necessary for future strategic policy planning concerning rehabilitation and minimization of losses.
Prior studies (BD, 1997; DPZ, 1999) investigate whether earnings thresholds, i.e. earnings zero point, last-period earnings, and analyst earnings forecast, exist by examining the smoothness of cross-sectional distribution of earnings. If there is no earnings management around those thresholds, the cross-sectional distribution of earnings should be smooth. However, if management manipulates earnings, the cross-sectional distribution of earnings should be unsmooth around the thresholds: There will be fewer firms than expected in the bin just left-next to the threshold and more firms than expected in the bin just right-next to the threshold. Thus, testing whether earnings manipulation exists around thresholds is examining whether the “kink” of earnings distribution is significant. In their models, BD and DPZ assume the distributions of earnings are continuous and smooth around the thresholds. They extrapolate from neighborhood densities to compute the expected density at the threshold and reject the null for statistically significant discontinuities. If a significant discontinuity in the distribution is detected, they interpret it as evidence of earnings management to meet or slightly beat the threshold. 2 I use the statistic method from both BD and DPZ to examine discontinuities in cash flow distributions when the thresholds are not at the peak of the histogram. I use DPZ’s statistic when the threshold coincides with the peak and therefore BD’s statistic is not applicable.
8 The first step of SD involves understanding about the system in the form of causal loop diagram. Then it was transformed to the system dynamic stock and flow diagram, which contains components of a system, inter component interactions and its behaviors. By using IThink software, a computer simulation model was developed and it was validated using history statistical data. In order to understand the possible problems and its solution of the system several scenarios need to be simulated (Sterman, 2000).