Sectoral Imbalances and Long-run Crises

Domenico Gatti, Mauro Gallegati, Bruce C. Greenwald, Alberto Russo and Joseph Stiglitz
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Domenico Gatti: Università Cattolica
Bruce C. Greenwald: Columbia University

Chapter 4 in The Global Macro Economy and Finance, 2012, pp 61-97 from Palgrave Macmillan

Abstract: Abstract There has been a widespread presumption that the current economic crisis is a financial crisis, caused by the bursting of a credit bubble. Unjustified optimism about asset prices and associated risks (primarily in housing but also in financial industry equities and even in equities generally), accommodated by lax regulation, careless private lending and loose monetary policies, led to unsustainable levels of household and financial sector leverage. The inevitable collapse of the underlying asset prices then caused widespread bankruptcies, foreclosures, and impaired balance sheets among households, firms, and financial institutions. Combined with consequent large increases in the incremental risks of lending and investing, these balance sheet effects induced large declines in household spending, firm output and investment, and bank lending.1

Keywords: Real Wage; Real Interest Rate; Great Depression; Cash Holding; Urban Sector (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:pal:intecp:978-1-137-03425-0_5

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DOI: 10.1057/9781137034250_5

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