The Quarterly Journal of Economics· 2012Q1
Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach*
- 1,432citations
- Q1SCImago
- 2012year
Short summary
A new Keynesian model shows how debt overhangs and forced deleveraging can depress aggregate demand, leading to debt-driven slumps and liquidity traps.
AI-generated from the title and abstract; the full text is not read.
Key points
- A new Keynesian model explains debt-driven slumps caused by debt overhangs and forced deleveraging.
- The model integrates Fisherian debt deflation, liquidity trap possibilities, and the paradox of thrift.
- It naturally generates a Keynesian-style multiplier and supports expansionary fiscal policy.
- The approach offers insights into historical economic crises, including Japan's lost decade and the Great Depression.
AI-generated from the title and abstract; the full text is not read.
Abstract
Abstract In this article we present a simple new Keynesian–style model of debt-driven slumps—that is, situations in which an overhang of debt on the part of some agents, who are forced into rapid deleveraging, is depressing aggregate demand. Making some agents debt-constrained is a surprisingly powerful assumption. Fisherian debt deflation, the possibility of a liquidity trap, the paradox of thrift and toil, a Keynesian-type multiplier, and a rationale for expansionary fiscal policy all emerge naturally from the model. We argue that this approach sheds considerable light both on current economic difficulties and on historical episodes, including Japan’s lost decade (now in its 18th year) and the Great Depression itself.
The authors' abstract, as published at the source. The Quarterly Journal of Economics, 2012 · DOI ↗
Continue with a free account
Ask the paper: 3 free questions a day about this paper; save it, get its citation, new summaries every day for your field. Takeaways are Premium.
Continue free on the webSign in with Google or Apple; no card needed. You come back to this paper.
On your phone:
Field: General Economics, Econometrics and Finance
General Economics, Econometrics and FinanceEconomics, Econometrics and Finance