Workers’ debt, default and the diversity of financial fragilities

Matthieu Charpe and Peter Flaschel

Structural Change and Economic Dynamics, 2013, vol. 27, issue C, 48-65

Abstract: This paper presents a model addressing the conditions under which financial instability arises in the event of household debt. The model addresses two main cases. First, household debt is affected by functional income distribution. Second, household debt is affected by credit supply and depends on bank performance. The model shows that financial fragility arises through a Fisher effect in the first case and through a debt financed consumption boom in the second case. The model then explores two extensions. First, we raise the question of debt default and its impact on financial instability. Second, we discuss the ability of capital adequacy ratio to limit financial instability.

Keywords: Households debt; Booms; Commercial banks; Credit rationing; Minsky (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:27:y:2013:i:c:p:48-65

DOI: 10.1016/j.strueco.2013.07.001

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