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

Dafermos, Yannis

Authors



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. © 2012 M.E. Sharpe, Inc. All rights reserved.

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
Publication Date Jul 1, 2012
Journal Journal of Post Keynesian Economics
Print ISSN 0160-3477
Publisher Taylor & Francis (Routledge)
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
Public URL https://uwe-repository.worktribe.com/output/952476
Publisher URL http://dx.doi.org/10.2753/PKE0160-3477340407