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Global Finance, Financial Cycle and Macroeconomic Stability

Michel Aglietta * Conseiller, CEPII et France Stratégie. Contact :

From the 1980s onwards, finance has turned global without much positive impact on long-run growth and economic stability. Contrary the assumption of efficiency and transparency, finance is a network of complex and opaque networks that nurture uncertainty.

Such dynamic systems are endogenously driven by the interaction of indebtedness and asset prices, generating momentum that shows up in the financial cycle. The dynamic feeds in financial vulnerabilities that remain inconspicuous during the euphoric stage of the cycle and burst out at the turning point (Minsky’s moment). It means that the crisis is endogenous to the financial cycle.

The financial cycle impacts the macro economy in activating the financial accelerator.

Both supply side factors and effective demand are hit. Depending on the magnitude of the leveraging/ deleveraging process, multiple macro equilibria are possible, including secular stagnation.

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