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Faculté et Recherche

Indebted Demand

24 nov
2020
15H15
Jouy-en-Josas
Anglais

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2020-11-24T15:15:00 2020-11-24T16:30:00 Indebted Demand Economics and Decision Sciences Speaker : Ludwig Straub From : Harvard University & NBER ZOOM Videoconference   Jouy-en-Josas

Economie et Sciences de la Décision

Intervenant : Ludwig Straub

De : Harvard University & NBER

Vidéoconférence ZOOM

 

Abstract :

We propose a theory of indebted demand, capturing the idea that large debt burdens by households and governments lower aggregate demand, and thus natural interest rates. At the core of the theory is the simple yet under-appreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent overlapping-generations model, we find that recent trends in income inequality and financial liberalization lead to indebted household demand, pushing down natural interest rates. Moreover, popular expansionary policies—such as accommodative monetary policy and deficit spending—generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. We document that the behavior of our model is in line with several recent empirical facts and discuss policies to reduce demand indebtedness.

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2020-11-24T15:15:00 2020-11-24T16:30:00 Indebted Demand Economics and Decision Sciences Speaker : Ludwig Straub From : Harvard University & NBER ZOOM Videoconference   Jouy-en-Josas