Liquidity preference, uncertainty, and recession in a stock-flow consistent model

Dafermos, Yannis

Abstract

This paper develops a stock-flow consistent model that explicitly integrates the role of liquidity preference and perceived uncertainty into the decision-making process of households, firms, and commercial banks. Emphasis is placed on (1) the link between the precautionary motive and the asset choice of the private sector, (2) the effect of perceived uncertainty on the desired margins of safety and borrowing, and (3) the impact of financial obligations on the liquidity preference of households and firms. Performing a simulation experiment, the paper illuminates the channels through which a rise in perceived uncertainty is likely to set off a recessionary process.

Citation

Dafermos, Y. (2012). Liquidity preference, uncertainty, and recession in a stock-flow consistent model. Journal of Post Keynesian Economics, 34(4), 749-776. https://doi.org/10.2753/PKE0160-3477340407

• Journal Article Type: Article
• Acceptance Date: Oct 13, 2011
• Online Publication Date: Dec 8, 2014
• Publication Date: Jun 1, 2012
• Deposit Date: Sep 2, 2019
• Journal: Journal of Post-Keynesian Economics
• Print ISSN: 0160-3477
• Electronic ISSN: 1557-7821
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• Volume: 34
• Issue: 4
• Pages: 749-776
• DOI: https://doi.org/10.2753/PKE0160-3477340407
• Keywords: liquidity preference, perceived uncertainty, recessionary process, stock-flow consistent modeling
• Related Public URLs: http://dx.doi.org/10.2753/PKE0160-3477340407