| Chapter 1 studies empirically how relative supply and demand conditions on the capital market affected US firm-level investment over the business cycles from 1977 to 2011. A dynamic econometric specification of capital accumulation including sales growth, Tobin’s q, the cash flow-capital ratio and the cost of capital as covariates is fitted by a rolling window System GMM estimator using quarterly data on publicly traded US corporations in order to obtain time-varying coefficients. We find that the investment effects of the variables capturing the demand-side of the capital market, i.e. sales growth and Tobin’s q, behave counter-cyclically, whereas this does not hold for the investment effects of supply-side variables such as cash flow or the cost of capital. Our results suggest that investment was typically driven by adverse demand rather than supply conditions on the capital market during the most severe recessions.;Chapter 2 studies the sustainability of sovereign debt in 15 OECD countries from 1980 to 2010 with a focus on how and in what countries debt sustainability changed after the commencement of the Euro Convergence Criteria in 1997 as well as after the financial meltdown in 2007. We define sustainability as the validity of the inter-temporal budget constraint of the government and test a sufficient condition using single-country and pooled regressions. We find evidence that the Euro Convergence Criteria contributed to the sustainability of debt accumulation. Further, while the yield spreads suggest the debt crisis is a problem of the southern Euro countries, we find a lack of debt sustainability for Greece, Portugal and France but not for Italy and Spain. The crisis adversely affected sustainability primarily in stand-alone countries rather than in members of the European Monetary Union. Our results support the view that countries within a monetary union are more prone to investors’ sentiments than stand-alone countries.;Within a Kaleckian framework, chapter 3 reconciles Harrodian instability and a constant long-run utilization rate with the principle of effective demand by endogenizing the capacity output-capital ratio. Its change over time is argued to be a positive function of the utilization rate. As stabilizing forces, distribution and debt dynamics are considered. We argue that with plausible non-linearities in the investment function limit cycles consistent with empirical observations for the US can be generated by the model with reasonable parameter values and functional forms. We argue that with an endogenous capacity-capital ratio the paradox of thrift as well as the paradox of cost may hold despite a constant long-run utilization rate. |
