Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach*

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ID: 292431
2012
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Abstract
Abstract In this article we present a simple new Keynesian–style model of debt-driven slumps—that is, situations in which an overhang of debt on the part of some agents, who are forced into rapid deleveraging, is depressing aggregate demand. Making some agents debt-constrained is a surprisingly powerful assumption. Fisherian debt deflation, the possibility of a liquidity trap, the paradox of thrift and toil, a Keynesian-type multiplier, and a rationale for expansionary fiscal policy all emerge naturally from the model. We argue that this approach sheds considerable light both on current economic difficulties and on historical episodes, including Japan’s lost decade (now in its 18th year) and the Great Depression itself.
Reference Key
openalex_W2137057669 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Gauti B. Eggertsson, Paúl Krugman
Journal the quarterly journal of economics
Year 2012
DOI
10.1093/qje/qjs023
URL
https://doi.org/10.1093/qje/qjs023
Keywords Keywords not found

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