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Household debt and housing bubbles: a Minskian approach to boom-bust cycles

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  • Soon Ryoo

    (Adelphi University)

Abstract

This paper examines macroeconomic dynamics of household debt and housing prices in a two-class economy. Drawing on Minsky’s insights into financial instability and cycles, our framework combines household debt dynamics with behavioral asset price dynamics in a Keynesian macro model. We show that endogenous boom-bust cycles can emerge through the interaction between household debt and housing price dynamics. In this model, a long period of housing bubbles is characterized by increases in the profit share and the workers’ indebtedness for most of the time. The long waves are combined with a Kaldorian model of short-run business cycles.

Suggested Citation

  • Soon Ryoo, 2016. "Household debt and housing bubbles: a Minskian approach to boom-bust cycles," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 971-1006, December.
    • Handle: RePEc:spr:joevec:v:26:y:2016:i:5:d:10.1007_s00191-016-0473-5
    DOI: 10.1007/s00191-016-0473-5
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    More about this item

    Keywords

    Household debt; Housing bubbles; Limit cycle; Financial instability hypothesis; Stock-flow consistency;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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