Analysing the long- run effect of a

Analysing the long- run effect of a higher interest rate, one should also takeinto account that the mark- up and hence the profit share may be interest-elastic and hence the gross profit share (including retained earnings andinterest payments) may increase. Regarding the stability analysis fromabove, this means that, ceteris paribus, a long- run increase in the grossprofit share may turn a stable financial structure unstable, as can be seen inconditions (9.15a’) and (9.15a’’). However, in what follows we will ignorethe possibility of an interest- elastic mark- up and profit share in order tokeep the analysis as simple as possible.