Deleveraging crises and deep recessions: a behavioural approach
Pascal Seppecher () and
Isabelle Salle ()
No 14-10, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance
Macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings. Standard micro-founded macro-economic models account for these patterns through exogenous and persistent shocks. In this paper, we develop a fully decentralized and micro-founded macro-economic agent-based model, augmented with an opinion model, which produces endogenous waves of pessimism and optimism that feed back into firmsâ€™ leverage and householdsâ€™ precautionary saving behaviour. A major emergent property of our model is precisely the complex successions of stable and unstable macroeconomic regimes. The model is further able to account for a wide spectrum of macro- and micro empirical regularities. Within this framework, we analyse a series of macro-economic phenomena of key relevance in the current macro-economic debate, especially the occurrence of deleveraging crises and Fisherian debt-deflation recessions. Our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflationary path are critical determinants of the severity of the recession, and the chances of recovery.
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Journal Article: Deleveraging crises and deep recessions: a behavioural approach (2015)
Working Paper: Deleveraging crises and deep recessions: a behavioural approach (2015)
Working Paper: Deleveraging crises and deep recessions: a behavioural approach (2014)
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