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Worker debt, default ans diversity of financial fragility

Author

Listed:
  • Matthieu Charpe
  • Peter Flaschel

    (Univeristy of Bielefeld, Germany
    Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation)

Abstract

This paper presents a model addressing the conditions under which financial instability arises in the event of household debt. The model addresses two main cases. First, household debt is affected by functional income distribution. Second, household debt is affected by credit supply and depends on bank performances. The model shows that financial fragility arises through a Fisher effect in the first case and through a debt financed consumption boom in the second case. The model then explores two extensions. First, we raise the question of debt default and its impact on financial instability. Second, we discuss the ability of capital adequacy ratio to limit financial instability.

Suggested Citation

  • Matthieu Charpe & Peter Flaschel, 2011. "Worker debt, default ans diversity of financial fragility," IMK Working Paper 5-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:5-2011
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    File URL: http://www.boeckler.de/pdf/p_imk_wp_5_2011.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Flexicurity; employer of ¯rst resort; Solovian growth; company pension funds; sustainability;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government

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