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On the Systemic Fragility of Finance‐Led Growth
Author(s) -
Bhaduri Amit,
Raghavendra Srinivas,
Guttal Vishwesha
Publication year - 2015
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12070
Subject(s) - economics , fragility , financial fragility , real economy , asset (computer security) , macroeconomic model , stock (firearms) , macroeconomics , financial crisis , monetary economics , engineering , mechanical engineering , chemistry , computer security , computer science
The paper sets up a model of economic crisis by investigating the role played by movement in asset price as a driver of the dynamic interaction between the real and the financial sectors. Such movement influences income determination in the real economy in the short period through aggregate demand leading to the emergence of two macroeconomic regimes. A short period flow model, underpinned by the stock flow consistent accounting framework, is developed to formalize the dynamics of interaction between real and financial sectors mediated by movement in asset price, generates bistability, abrupt crashes, and systemic fragility in the macroeconomic regimes.