Consumer and Corporate Debt: A Neo-Kaleckian Synthesis

Yk Kim and Alan Isaac

No 1108, Working Papers from Trinity College, Department of Economics

Abstract: Models of the macrodynamic impact of private debt tend to emphasize the role of corporate debt. Corporate leverage affects macroeconomic outcomes and can contribute to financial fragility. We show that consumer debt is also important. We include consumer as well as corporate debt in a stock-flow consistent neo-Kaleckian growth model and explore the macrodynamic ramifications. We find that consumer credit conditions influence effective demand, the profit rate, and economic growth. The inclusion of consumer debt as well as corporate debt in our model substantially alters the model's dynamics. We compare our short-run, transition, and long-run results to models containing a single type of debt. Some of our results confirm the results of simpler models. For example, we find that a surge in animal spirits is good for steady-state growth. We show that consumer borrowing can also help to sustain aggregate demand, that looser consumer credit conditions have a steady-state growth effect, and that demand augmenting changes can enhance system stability. In this sense, looser consumer credit conditions are good for macroeconomic stability.

Keywords: consumer debt; corporate debt; leverage; growth; stability (search for similar items in EconPapers)
JEL-codes: E12 E44 O41 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-08
New Economics Papers: this item is included in nep-mac and nep-pke
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Citations: View citations in EconPapers (11)

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http://www3.trincoll.edu/repec/WorkingPapers2011/WP11-08.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Consumer and Corporate Debt: A Neo- K aleckian Synthesis (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:tri:wpaper:1108

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