A simple finance-led SFC model
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A simple finance-led SFC model book
The chapter presents a simple SFC model for a closed economy with constant prices in order to give a first glance at the finance-led regime that settled in most developed countries since the early 1980s. Based on the French case, considered as representative of the main trends, four stylised facts are highlighted: a limited recovery of the accumulation rate of non-financial firms; an even less favourable evolution of the profit rate due to the boom of the property price fuelled by financial liberalisation; a stronger growth rate of financial accumulation (with the financial rate of return as the main driver); and higher indebtedness of firms masked by revaluation effects. Compared to other SFC models, two functions for non-financial firms are introduced for a better description of the finance-led regime: a financial accumulation related to the financial rate of return and a demand for indebtedness. Simulations can reproduce some of the main characteristics of the cycles of the 1990s and 2000s. Financial cycles are generated by the price of equities clearing the market. They appear as the normal adjustment mode of the finance-led regime, but they remain rather simple and other components should be introduced.