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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

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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    Cited by:

    1. Eugenio Caverzasi & Alberto Russo, 2018. "Toward a new microfounded macroeconomics in the wake of the crisis," Working Papers PKWP1807, Post Keynesian Economics Society (PKES).
    2. Soon Ryoo, 2018. "Top income shares and aggregate wealth-income ratio in a two-class corporate economy," Cambridge Journal of Economics, Oxford University Press, vol. 42(3), pages 699-728.
    3. Stockhammer, Engelbert & Wildauer, Rafael, 2017. "Expenditure Cascades, Low Interest Rates or Property Booms? Determinants of Household Debt in OECD Countries," Economics Discussion Papers 2017-3, School of Economics, Kingston University London.
    4. Glennie Lauren Moore & Engelbert Stockhammer, 2018. "The drivers of household indebtedness re-considered: an empirical evaluation of competing arguments on the macroeconomic determinants of household indebtedness in OECD countries," Working Papers PKWP1803, Post Keynesian Economics Society (PKES).
    5. Stefan Ederer & Miriam Rehm, 2018. "Making sense of Piketty’s ‘fundamental laws’ in a Post-Keynesian framework," Working Papers PKWP1808, Post Keynesian Economics Society (PKES).
    6. Leila E. Davis - Joao Paulo A. de Souza y Gonzalo Hernandez & Joao Paulo A. de Souza & Gonzalo Hernandez, 2017. "An empirical analysis of Minsky regimes in the US economy," VNIVERSITAS ECONÓMICA 015495, UNIVERSIDAD JAVERIANA - BOGOTÁ.
    7. Rafael Wildauer, 2016. "Determinants of US household debt: New evidence from the SCF," Working Papers PKWP1608, Post Keynesian Economics Society (PKES).
    8. Engelbert Stockhammer & Rob Jump & Karsten Kohler & Julian Cavallero, 2018. "Short and medium term financial-real cycles: An empirical assessment," Working Papers PKWP1808, Post Keynesian Economics Society (PKES).

    More about this item

    Keywords

    Household debt; Housing bubbles; Limit cycle; Financial instability hypothesis; Stock-flow consistency;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • 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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