A Model Of Interaction Between The Virtual And The Real Economy
AbstractThis paper demonstrates through a formal model how the wealth effect created by a stock market boom leads to the expansion of demand and output mostly through debt-financed private consumption. However, inherent in this expansion is the threat of a subsequent contraction caused by the rising burden of servicing debt and falling creditworthiness. The formal analysis captures more precisely these conditions; it shows that, even in the medium run, the growth rates of the wealth in the stock market and of the real economy may move in opposite directions. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Metroeconomica.
Volume (Year): 57 (2006)
Issue (Month): 3 (07)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0026-1386
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