Credit Booms, Debt Overhang and Secular Stagnation

Arbeitspapier

Why do advanced economies fall into prolonged periods of economic stagnation, particularly in the aftermath of credit booms? We present a model of persistent aggregate demand shortage based on strong liquidity preferences of households, in which we incorporate financial imperfections to study the interactions between debt, liquidity and asset prices. We show that financially more deregulated economies are more likely to experience persistent stagnation. In the short run, credit booms can mask this structural aggregate demand deficiency. However, the resulting debt overhang permanently depresses spending in the long run since deleveraging becomes self-defeating because of debt deflation. These findings are in line with the macroeconomic developments in Japan during its lost decades and other advanced economies before and during the Great Recession.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 6796

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Demand for Money
• Thema: secular stagnation ; aggregate demand deficiency ; liquidity preferences ; financial frictions. leverage

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Illing, Gerhard ; Ono, Yoshiyasu ; Schlegl, Matthias
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2017

Weitere Informationen

• Handle: http://hdl.handle.net/10419/174919
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ