An Effective Demand Model of Corporate Leverage and Recession

Rilina Basu () and Ranjanendra Narayan Nag ()
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Rilina Basu: Rabindra Bharati University
Ranjanendra Narayan Nag: St. Xavier’s College (Autonomous)

Chapter 22 in Analytical Issues in Trade, Development and Finance, 2014, pp 381-394 from Springer

Abstract: Abstract This chapter analyses the role of balance sheet effect in triggering off financial meltdown. Specifically, this chapter extends Krugman’s model (The International Finance Multiplier, 2008) to analyse how financial crisis can generate economy-wide recession. We construct an effective demand model to examine how channels of transmission operate through the balance sheet of highly leveraged firms.

Keywords: Financial leverage; Balance sheet effects; Tobin’s q (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isbchp:978-81-322-1650-6_22

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DOI: 10.1007/978-81-322-1650-6_22

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