THE PARADOX OF DEBT AND MINSKY'S FINANCIAL INSTABILITY HYPOTHESIS

Some authors have claimed that the paradox of debt invalidates Minsky's theory of financial instability. Their theoretical frameworks are radically different from Minsky's in several aspects. Important Minskian elements, the role of margins of safety as a basis of financial decisions and the effects of asset prices on debt dynamics, among others, are absent in the critics' frameworks. We maintain that the thrust of the paradox of debt‐based criticism to Minsky's theory has been exaggerated and key insights of Minsky's theory of financial instability can be formalized in an alternative macroeconomic framework. We provide a stock‐flow consistent model of Minskian long waves.     

Lagging Effects of the Use of Activity‐Based Costing on the Financial Performance of Small Firms*

This paper contributes to the earlier small business literature by investigating the lagging effects of the use of activity‐based costing (ABC) on small firms' performance. Moreover, we examine if the small firms' past financial performance drives the adoption of ABC and explore whether the extent of ABC use leads, in turn, to improvements in firms' financial performance in the immediate future. In sum, the survey results indicate that small firms with adequate financial resources as well as firms experiencing declining growth tend to use ABC and such use facilitates their subsequent growth and profitability. Small firms seem to benefit from using ABC.     

A High‐Growth Firm Contingency Test of the Formalization‐Performance Relationship

The effect of formalization in high‐growth firms' performance is still unclear. We propose that formal commitment‐based human resource practices contribute positively to the financial performance of established high‐growth firms but have little effect on emergent ones. Using a sample of 101 Portuguese high‐growth firms (2006–2009 period), we tested the effect of formal HR practices during the high‐growth period in their financial results two years later (2011). Our results suggest that adopting a formal performance appraisal and a formal R&D function contributed positively for the performance of only established firms, while adopting a formal training activity negatively affected the performance of only emergent firms.     

Borrowing Capacity and Financial Decisions of Low‐to‐Moderate Income First‐Time Homebuyers

This study documents the extent to which first‐time homebuyers seeking a mortgage accurately estimate their borrowing capacity and how this is associated with their decisions regarding mortgage debt and the take‐up of a free offer of financial coaching. We find that consumers who underestimate their nonmortgage debt (31.5% of the sample) also take out larger mortgages relative to income. Consumers who underestimate or overestimate their total debt as well as their monthly debt payments are more likely to accept the offer of financial coaching. Moreover, overconfidence in financial matters reduces the take‐up of financial coaching. These biases in perceived financial status appear to be systematically related to behavior among a group of relatively inexperienced consumers. These findings suggest that efforts to extend homeownership may need to include debiasing mechanisms to help less informed consumers accurately assess their current debt levels and ability to make ongoing mortgage payments.     

Using the Family Self‐Sufficiency Program to Help Families with Housing Assistance Improve Earnings,Credit Score,and Debt Levels: A Quasi‐Experimental Analysis

HUD's Family Self‐Sufficiency (FSS) program aims to help housing assistance recipients increase their earnings and build savings to make progress toward economic security. This study examines an asset‐building nonprofit's innovative financial coaching‐based approach to FSS that adds an additional focus on helping clients build assets and financial capability. We use a quasi‐experimental approach to estimate the program's impact on earnings and cash assistance receipt and analyze credit and debt outcomes against a benchmark group. The findings show substantial, significant gains in households' earnings and significant decreases in receipt of some cash benefits. Participants also saw increases in credit score, and success in paying down credit card and derogatory debt. Our results indicate that FSS can be an effective platform for helping participants in subsidized housing make real progress toward economic security and financial health.     

THE IMPORTANCE OF THE RETENTION RATIO IN A KALECKIAN MODEL WITH DEBT ACCUMULATION

By using a Kaleckian model with debt accumulation, Hein (2007; Metroeconomica, 56 (2), pp. 310–39) found that the long‐run equilibrium value of the debt–capital ratio is positive and stable only if interest rates are extremely high and if the short‐run equilibrium exhibits the ‘debt‐led’ growth regime. However, this conclusion crucially depends on the assumption that the retention ratio of firms is equal to unity. By relaxing this assumption, we show that there exists a positive and stable long‐run equilibrium even under the ‘debt‐burdened’ regime without any constraint on the nominal interest rate.     

The management of exchange‐rate risk: A case from the manufacturing industry

This article looks into the management of exchange rate risk at a U.K.‐listed company. The focus is particularly on the firm's operating exchange risk, for which it uses a synthesis of three different risk management approaches. These include the use of long‐term financial hedging instruments, operational adjustments based on real options theory, and the currency denomination of debt. Practice at the case company is unique, in that the former approach has been considered inappropriate by the theoretical literature and the latter is seldom used to manage firms' real cash flow exposures. In general, it has important implications for multinationals, especially with reference to the use of operational adjustments and the currency denomination of debt. © 2004 Wiley Periodicals, Inc.     

Debt problems,home‐leaving,and boomeranging: A register‐based perspective on economic consequences of moving away from parental home

This article analyses the development of financial problems after leaving one's parental home, and considers how financial problems are associated with likelihood of boomeranging (i.e., adult children returning to parental home). The 9‐year follow‐up study focused on a nationally representative sample of Finnish young people between the ages of 15 and 25 who moved out from their parental home between 2006 and 2009 (n = 9,196). The measure of debt problems was based on monthly data on debt enforcement, a legal matter which may bring serious consequences for the debtors. The primary within‐individual, longitudinal analyses showed that debt problems increased directly after leaving parental home. Education and family background were significant predictors of debt problems in the four years after leaving parental home. Early leavers had significantly more debt problems than later leavers. Debt problems were associated with a higher likelihood of moving back to parental home. The results imply that it is important to support economic decision‐making during early adulthood.     

Financing constraints and US cross‐listing

This study investigates whether relaxation of firms' financial constraints is an important outcome of the US cross‐listing mechanism. We use the association between investment spending and cash flow to test for the presence and importance of firms' financing constraints. Consistent with the bonding hypothesis, the results suggest that US exchange and private placement cross‐listings significantly alleviate firms' financing constraints. In addition, the financial benefits associated with exchange listings are larger than those associated with private listings, while on the other hand, over‐the‐counter programs do not improve capital allocation. The study also shows that US exchange cross‐listing benefits have not been eroded by the enactment of the Sarbanes‐Oxley (SOX) Act in 2002. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.     

促进经济增长的中国政府最优债务率测算

通过构建跨期模型来探讨一国债务与经济增长的关系。理论分析表明,一国债务与经济增长之间存在倒U形关系,即在一定条件下,当一国的债务低于最优值时,提高债务对经济增长具有促进作用,而当债务超过这一最优值时,增加债务则对经济增长具有副作用。在理论分析的基础上,构建了线性时间序列模型,基于中国样本数据证实了中国政府债务与中国经济增长之间倒U形关系的存在,并测算出现阶段中国政府最优债务率约为47％。这一结论表明：中国政府债务目前尚处于合理范围,虽然长期来看中国政府债务的提升空间已不大,但短期内进一步提升的空间犹存,这为中国政府充分运用财政政策提升尚处于探底阶段的中国经济预留了政策空间。     

INTEREST RATE,DEBT, DISTRIBUTION AND CAPITAL ACCUMULATION IN A POST‐KALECKIAN MODEL

In the present paper we extend Lavoie's (Metroeconomica, 1995, vol. 46, pp. 146–177) ‘Minsky–Steindl’ model, building our analysis on a Kaleckian distribution and growth model which has already taken into account distribution effects of interest rate variations on the short‐run equilibrium. Into this model the effects of debt and debt services are explicitly introduced and the effects of interest rate variations on the short‐ and the long‐run equilibrium are derived. It is shown that the effects of interest rate variations on the endogenously determined equilibrium values of the model not only depend on the parameter values in the saving and investment functions but also on the interest elasticity of distribution and on initial conditions with respect to the interest rate and the debt–capital ratio.     

The Economics of Exchange‐Rate Regimes: A Review Essay

The exchange‐rate regime issue has taken centre‐stage in discussions of international economic policy. Much of the profession appears to have been converted to ‘the hypothesis of the vanishing middle regime’; for countries well‐integrated into world capital markets, there is little, if any, middle ground between floating exchange rates and monetary unification. This paper considers the exchange‐rate‐regime issue in the context of recent books on the subject by W. Max Corden and Morris Goldstein. Both authors prescribe managed floating exchange rates, supplemented with inflation targeting, for emerging‐market economies. Under managed floating, and with a credible monetary policy, the public finances in order, and strengthened debt management and prudential regulation, the exchange rate is free to act as a market gauge for assessing policies and as a mode of conflict resolution. Both authors also argue, however, that no exchange‐rate regime is a Holy Grail. Ultimately, a credible exchange‐rate regime depends upon the trust evoked by governments. There is no exchange‐rate regime, whether of the managed‐floating or hard‐fix variety, that can eradicate a history of failed stabilisation attempts.     

Consumer and Corporate Debt: A Neo‐Kaleckian Synthesis

We present a neo‐Kaleckian growth model with both consumer and corporate debt. The model's macrodynamic and stability characteristics differ from singleߚdebt models, yet some steadyߚstate results persist. For example, a surge in ‘animal spirits’ is good for steadyߚstate growth, and consumer borrowing can help to sustain aggregate demand. Stable steady states are characterized by a kind of ‘euthanasia of the rentier’. Consumer credit conditions influence effective demand, the profit rate and economic growth. Looser consumer credit conditions have a steadyߚstate growth effect and can enhance system stability. In this restricted sense, looser consumer credit conditions are good for macroeconomic stability.     

Migrants’ Remittances and Financial Development: Macro‐ and Micro‐Level Evidence of a Perverse Relationship

Financial development is commonly identified as an important condition for fostering investment and economic growth. It is also believed that migrants’ remittances stimulate financial development in the receiving economy, contributing indirectly to economic growth. We explore the relationship between remittances and financial development using macro‐ and micro‐level data. From cross‐country panel data, we find evidence of a negative relationship between remittances and financial deepening in developing countries. Using household survey data from a study of migrants’ remittances in two CIS countries, Azerbaijan and Kyrgyzstan, we also investigate the relationship between remittances, financial intermediation and ‘financial literacy’ among remittance‐receiving households. While we find some evidence of a positive, albeit weak, relationship for Kyrgyzstan, in Azerbaijan, the relatively more financially developed economy, we uncover a strong perverse relationship. Remittances appear to deter bank intermediation and use of formal banking services. Possible reasons are explored and areas for further investigation identified.     

External Debt,Labour Productivity Growth and Convergence: Evidence from Sub‐Saharan Africa

Sub‐Saharan Africa (SSA) has long suffered from lagging productivity and excessive levels of indebtedness. Using both parametric and non‐parametric techniques, this paper examines the impact of external debt on labour productivity growth and convergence across SSA economies over the period 1970–2010. The results indicate the presence of debt‐overhang effects, regardless of model and sample specification. Debt reduction through the Heavily Indebted Poor Countries and Multilateral Debt Relief initiatives enhanced growth but was not successful in offsetting the debt‐overhang effects. Moreover, excessive levels of external debt were responsible for divergence in output per worker over the early 1990s. Although this trend was reversed over the 2000s, reduction in debt through the debt relief initiatives seems to have been insufficient in helping heavily indebted countries in SSA catch up with the labour productivity levels of the best‐performing economies in the region.     

最优债务条件与经济增长--基于中国省级经验数据

债务曾在中国过去长期高速经济增长中被奉为“神明”,又在当前经济步入“新常态”阶段而被斥为“魔鬼”,事实上,债务本身并无“善恶”之分,也不存在各地区普适的最优债务安排,合理的债务规模和结构应该适于经济体所处发展阶段。为探究经济增长目标下的最优债务条件,本文基于1978－2012年中国省级面板数据,实证研究发现中国的债务规模和债务结构之间存在着相互制约关系,债务总规模与公共性债务“双重增长”存在“最优解”,在此“最优解”之前无论是债务规模的增长或是公共性债务的增长均会带来经济增长,而在达到这一上限后,要实现经济增长,唯有在降低债务规模或是债务结构调整之间做出权衡。债务规模和债务结构的“最优解”以区域金融结构、财政收支、国有经济投资比重、城镇化率等为条件,稳健性检验再次验证了上述结论,并在此基础上提出相关政策建议。     

THE PUBLIC SECTOR IN A MODEL OF GROWTH AND DISTRIBUTION À LA PASINETTI: EXISTENCE OF ONE‐ OR TWO‐CLASS ECONOMIES

This paper explores the implications of different regimes of taxation and fiscal policies on the existence of a one‐ or two‐class economy in the Kaldor–Pasinetti approach of growth and income distribution. A simple model and its diagrammatical representation provide a complete taxonomy of the possible steady state equilibria and synthesize some early and recent contributions. It shows that the distribution among factors and the personal distribution among socio‐economic classes depend on the fiscal policy of the government, the behavioural parameters of actors and technology; but, provided that some conditions are fulfilled, the Cambridge Theorem and its distributional implications hold.     

Funding development infrastructure without leverage: A risk‐sharing alternative using innovative sukuk structures

Muslim countries of the developing world suffer indebtedness resulting mostly from funding development infrastructure. Faced with a dire need for development infrastructure but with inadequate resources to fund them domestically, these governments often resort to foreign borrowing. As neither foreign banks nor international debt markets would allow for the debt to be in home currency, the funding is invariably denominated in foreign currency. For the borrowing country, in addition to currency exposure such borrowing increases the country's leverage and economic vulnerability. As these countries typically have a narrow economic base with heavy reliance on commodity exports, they are susceptible to the vagaries of commodity price fluctuation. Leverage increases the amplitude of the economy's fluctuation, resulting if not in outright crisis, then, at least in financial distress and depreciating home currency. As a result, when the foreign currency funded project comes on stream, it is burdened with huge accumulated debt which in many cases makes the project unmanageable without further government help through subsidy of operating costs. This further stresses already stretched government budgets and perpetuates indebtedness. This cycle of borrowing, leverage and vulnerability can be broken by innovative use of sukuk. The problem with debt financing is that the servicing requirements are independent of the underlying project's risk or cash flows. This paper presents two sukuk structures based on the risk sharing principles of Islamic finance. Sukuk that have returns linked to the nation's gross domestic product growth if the funded project is non‐revenue generating and linked to earnings of the project if it is revenue generating can avoid the problems above. The pay‐off profile, estimated cost of funds and returns to investors of these sukuk are discussed. When designed in small denomination, such sukuk can enhance financial inclusion, help build domestic capital markets and enable the financing of development without stressing government budgets.     

Health Shocks,Out‐of‐Pocket Medical Expenses and Consumer Debt Among Middle‐Aged and Older Americans

We examine two important issues related to health and financial burden in middle‐aged and older Americans: (1) whether or not new health events affect a consumer's unsecured debt, and (2) to what extent the associated out‐of‐pocket medical expenses (OOP) contribute to unsecured debt. We use six biennial waves (1998, 2000, 2002, 2004, 2006 and 2008) from the Health and Retirement Study (HRS). We estimated fixed effects models and conducted mediation analyses. We find that new health events affect the accumulation of unsecured debt. Our estimates suggest that new health events increase unsecured debt by 6.3% ($230) to 9.3 % ($339); approximately 20% of the increase in unsecured consumer debt comes from OOP when experiencing new health events. New severe health events increase debt for the 50–64 age group, but do not increase it for the 65+ group.     

A meta‐analytic investigation of consumer over‐indebtedness: The role of impulsivity

In the past decade, evidence has been accumulated on the relationship between impulsivity and over‐indebtedness. Nevertheless, the magnitude of such association is still considered marginal compared to traditional socio‐demographic and economic factors, with the important consequence that impulsivity continues to be ignored in policy interventions for preventing and dealing with over‐indebtedness. The aim of this study was to meta‐analyse existing studies to answer the question: Are higher levels of impulsivity associated with greater over‐indebtedness? Scopus and Web of Science databases were searched for English language studies. Seventeen studies were eligible for the analysis. The random effect model yielded a significant positive association between impulsivity and over‐indebtedness (Hedges' g = .40). Type of over‐indebtedness (debt holding vs. unmanageable debt) and work status (percentage of employed individuals) significantly moderated this association. Results are discussed in terms of implications and recommendations for future research, policy and practice.