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Worker debt, default ans diversity of financial fragility

Author

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  • 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
    1. Charpe,Matthieu & Chiarella,Carl & Flaschel,Peter & Semmler,Willi, 2015. "Financial Assets, Debt and Liquidity Crises," Cambridge Books, Cambridge University Press, number 9781107546660, March.
    2. Matthieu Charpe & Peter Flaschel & Christian Proano & Willi Semmler, 2009. "Overconsumption, credit rationing and bailout monetary policy: A Minskyan perspective," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 6(2), pages 247-270.
    3. Claudio Dos Santos & Gennaro Zezza, 2005. "A Simplified Stock-Flow Consistent Post-Keynesian Growth Model," Macroeconomics 0504019, EconWPA.
    4. Edwin Le Heron & Tarik Mouakil, 2008. "A Post-Keynesian Stock-Flow Consistent Model For Dynamic Analysis Of Monetary Policy Shock On Banking Behaviour," Metroeconomica, Wiley Blackwell, vol. 59(3), pages 405-440, July.
    5. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-393, December.
    6. Carl Chiarella & Peter Flaschel & Gang Gong & Willi Semmler, 2002. "Nonlinear Phillips Curves, Complex Dynamics and Monetary Policy in a Keynesian Macro Model," Working Paper Series 120, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    7. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 563-580, July.
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    11. Pollin, Robert, 1988. "The growth of U.S. household debt: Demand-side influences," Journal of Macroeconomics, Elsevier, vol. 10(2), pages 231-248.
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    More about this item

    Keywords

    Flexicurity; employer of ¯rst resort; Solovian growth; company pension funds; sustainability;

    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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