American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Fragile New Economy: Intangible Capital, Corporate Savings Glut, and Financial Instability
American Economic Review
vol. 115,
no. 4, April 2025
(pp. 1100–1141)
Abstract
The transition toward an intangible-intensive economy reshapes financial systems by creating a self-perpetuating savings glut in the production sector. As intangibles become increasingly important, firms hoard liquidity to finance investment in intangibles of limited pledgeability. Firms' savings feed cheap leverage to financial intermediaries and allow intermediaries to bid up asset prices, which in turn encourages firms to save more for asset creation. This paper develops a macrofinance model that offers a coherent account of rising corporate savings, debt-fueled growth of intermediaries, declining interest rates, and rising asset valuation. Along these secular trends, endogenous financial risk accumulates.Citation
Li, Ye. 2025. "Fragile New Economy: Intangible Capital, Corporate Savings Glut, and Financial Instability." American Economic Review 115 (4): 1100–1141. DOI: 10.1257/aer.20190650Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill