Long-run consequences of debt in a stock-flow consistent network economy

Saul Desiderio and Siyan Chen

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we develop a theoretical framework to analyze the long-run behavior of an economy characterized by a regime of persistent debt. We introduce a stock-flow consistent dynamic model where the economic system is represented by a network of trading relationships among agents. Debt contracts are one of such relationships. The model is characterized by a unique and stable steady-state, which predicts that (i) aggregate income is always limited from the above by the money supply and that (ii) debts cause a redistribution of borrowers' wealth and income in favor of lenders. In the aggregate this may also lower nominal income, as empirical evidence suggests.

Keywords: Debt; stock-flow consistency; dynamic systems (search for similar items in EconPapers)
JEL-codes: C61 D31 E51 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-dge and nep-hme
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:43011

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