IDEAS home Printed from https://ideas.repec.org/a/elg/ejeepi/v10y2013i2p136-157.html
   My bibliography  Save this article

Balance sheet recession as the ‘other half’ of macroeconomics

Author

Listed:
  • Richard C. Koo

    (Nomura Researcj Institute)

Abstract

Once every several decades, the private sector loses its mind in a bubble, leverages itself up to the hilt, and is forced into debt minimization in order to remove its debt overhang following the crash. When the private sector as a whole is deleveraging, even at record low interest rates, monetary policy is largely ineffective while fiscal policy becomes absolutely essential in keeping both the economy and money supply from shrinking. The superior effectiveness of monetary policy during private sector profit maximization and of fiscal policy during private sector debt minimization indicates that the latter was the long-overlooked ‘other half’ of macroeconomics.

Suggested Citation

  • Richard C. Koo, 2013. "Balance sheet recession as the ‘other half’ of macroeconomics," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(2), pages 136-157.
  • Handle: RePEc:elg:ejeepi:v:10:y:2013:i:2:p136-157
    as

    Download full text from publisher

    File URL: http://www.elgaronline.com/view/journals/ejeep/10-2/ejeep.2013.02.01.xml
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:bla:worlde:v:40:y:2017:i:2:p:314-335 is not listed on IDEAS
    2. Joerg Mayer, 2017. "How Could the South Respond to Secular Stagnation in the North?," The World Economy, Wiley Blackwell, vol. 40(2), pages 314-335, February.
    3. repec:taf:rripxx:v:24:y:2017:i:5:p:904-928 is not listed on IDEAS
    4. Bruno Albuquerque & Ursel Baumann & Georgi Krustev, 2014. "Has US Household Deleveraging Ended? A Model-Based Estimate of Equilibrium Debt," Working Papers w201404, Banco de Portugal, Economics and Research Department.
    5. Philipp Heimberger & Jakob Kapeller, 2017. "The performativity of potential output: pro-cyclicality and path dependency in coordinating European fiscal policies," Review of International Political Economy, Taylor & Francis Journals, vol. 24(5), pages 904-928, September.
    6. Philipp Heimberger, 2017. "Did fiscal consolidation cause the double-dip recession in the euro area?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(3), pages 439-458, July.
    7. Yannis Dafermos, 2015. "Debt cycles, instability and fiscal rules: a Godley-Minsky model," Working Papers 20151509, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    8. Florentin GLÖTZL & Armon REZAI, 2016. "A sectoral net lending perspective on Europe," Ecological Economics Papers ieep12, Institute of Ecological Economics.
    9. Albuquerque Bruno & Baumann Ursel & Krustev Georgi, 2015. "US household deleveraging following the Great Recession – a model-based estimate of equilibrium debt," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(1), pages 1-53, January.
    10. Unger, Robert, 2016. "Traditional banks, shadow banks and the US credit boom: Credit origination versus financing," Discussion Papers 11/2016, Deutsche Bundesbank.
    11. Eckhard Hein, 2016. "Secular stagnation or stagnation policy? Steindl after Summers," PSL Quarterly Review, Economia civile, vol. 69(276), pages 3-47.
    12. Glötzl, Florentin & Rezai, Armon, 2016. "A sectoral net lending perspective on Europe," Ecological Economic Papers 5109, WU Vienna University of Economics and Business.
    13. Witold Małecki, 2016. "Finansjalizacja cykli koniunkturalnych i jej konsekwencje dla polityki stabilizacyjnej," Gospodarka Narodowa, Warsaw School of Economics, issue 4, pages 47-68.

    More about this item

    Keywords

    ‘other half’ of macroeconomics; Yin and Yang economic cycles; micro-foundation of macroeconomics; unborrowed savings; dual problem of economics; debt minimization; balance sheet recession;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:elg:ejeepi:v:10:y:2013:i:2:p136-157. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katie Smith). General contact details of provider: http://www.elgaronline.com/ejeep .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.