Persistent Demand Shortage Due to Household Debt

Keiichiro Kobayashi

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: We construct and analyze a model of household debt with endogenous borrowing constraint, in which a large initial debt has a persistent adverse effect. In this economy, the redistribution shock that makes a percentage of people overly indebted can cause persistent shortages of aggregate demand and inefficiency due to labor-wedge deterioration. Overly accumulated debt may be a primal cause of persistent recessions. Debt forgiveness may be effective to restore aggregate demand and efficiency, and enhance welfare in a crisis-hit economy, where many households suffer from excessive debt burden.

Pages: 11 pages
Date: 2016-02
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.rieti.go.jp/jp/publications/dp/16e012.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:16012

Access Statistics for this paper

More papers in Discussion papers from Research Institute of Economy, Trade and Industry (RIETI) Contact information at EDIRC.
Bibliographic data for series maintained by TANIMOTO, Toko ().