Worker debt, default ans diversity of financial fragility

Matthieu Charpe and Peter Flaschel

No 5-2011, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

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 performances. 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: Flexicurity; employer of ¯rst resort; Solovian growth; company pension funds; sustainability (search for similar items in EconPapers)
JEL-codes: E3 E6 H1 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:imk:wpaper:5-2011

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