Skip to main content
Erschienen in: Journal of Economic Interaction and Coordination 2/2018

29.12.2016 | Regular Article

Long-run consequences of debt

verfasst von: Siyan Chen, Saul Desiderio

Erschienen in: Journal of Economic Interaction and Coordination | Ausgabe 2/2018

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config
loading …

Abstract

Empirical evidence suggests that both public and private debt may have long-run detrimental effects on the economy. However, theoretical works have not provided a unique explanation to the issue. In this paper, therefore, we propose a framework that is able to describe the long-run effects of different kinds of debt. We introduce a stock-flow consistent dynamic model where the economy is represented as a network of trading relationships among agents. Debt contracts are one of such relationships. The model is characterized by a unique and stable steady-state and predicts that: (i) aggregate income is always limited from the above by the money supply; (ii) debts cause in the long-run a redistribution of borrowers’ wealth and income in favor of lenders; (iii) the redistribution is magnified by the level of the interest rate and (iv) by the degree of debt persistence. In the aggregate this may also lower the average marginal propensity to spend and nominal income, providing therefore a clear-cut explanation to the empirical evidence.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Anhänge
Nur mit Berechtigung zugänglich
Fußnoten
1
To be precise, this is a marginal propensity to spend out of wealth (or liquidity) and not out of income.
 
2
Algebraically, matrix \({\tilde{C}}\) is singular, what can be easily verified by summing up its rows.
 
3
Moreover, computer simulations confirmed the result for any kind of network we tried: different kinds of random, scale-free (power law) and small-world networks.
 
4
By \(\sum X\) we mean the \(n\times 1\) column vector of the sum of the columns of matrix X.
 
5
In order to have interior solutions we also need that the ratio i / a is not too high, otherwise the model might show a meaningless behavior. In that case, to keep economic meaning and to have corner solutions we should introduce further constraints such as \(W_i \ge 0 \; \forall i\), but that would not add much to our knowledge.
 
6
Strictly speaking, the conditions are not satisfied as some diagonal element is not negative but zero. However, when a diagonal element is zero its corresponding variable is identically zero (e.g. \(D_1\)), which means that the variable plays no role in the system and consequently can be neglected.
 
7
This is true not only for the (obvious) monotonic case, but also for the oscillatory one. This is because, after starting its convergence process, \(W_i(t)\) can never revert to the original level as fluctuations are damped.
 
Literatur
Zurück zum Zitat Assenza T, Delli Gatti D, Grazzini J (2015) Emergent dynamics of a macroeconomic agent based model with capital and credit. J Econ Dyn Control 50:5–28CrossRef Assenza T, Delli Gatti D, Grazzini J (2015) Emergent dynamics of a macroeconomic agent based model with capital and credit. J Econ Dyn Control 50:5–28CrossRef
Zurück zum Zitat Bernanke B, Gertler M (1989) Agency costs net worth, and business fluctuation. Am Econ Rev 79(1):14–31 Bernanke B, Gertler M (1989) Agency costs net worth, and business fluctuation. Am Econ Rev 79(1):14–31
Zurück zum Zitat Bernanke B, Gertler M (1990) Financial fragility and economic performance. Q J Econ 105:87–114CrossRef Bernanke B, Gertler M (1990) Financial fragility and economic performance. Q J Econ 105:87–114CrossRef
Zurück zum Zitat Carroll C (1997) Buffer-stock saving and the life cycle/permanent income hypothesis. Q J Econ 112:1–55CrossRef Carroll C (1997) Buffer-stock saving and the life cycle/permanent income hypothesis. Q J Econ 112:1–55CrossRef
Zurück zum Zitat Cecchetti SG, Mohanty MS, Zampolli F (2011) The real effects of debt. BIS working papers, 381 Cecchetti SG, Mohanty MS, Zampolli F (2011) The real effects of debt. BIS working papers, 381
Zurück zum Zitat Checherita-Westphal C, Hughes Hallett A, Rother P (2012) Fiscal sustainability using growth-maximising debt targets. Working paper series, 1472, European Central Bank Checherita-Westphal C, Hughes Hallett A, Rother P (2012) Fiscal sustainability using growth-maximising debt targets. Working paper series, 1472, European Central Bank
Zurück zum Zitat Checherita C, Rother P (2010) The impact of high and growing government debt on economic growth. An empirical investigation for the Euro Area. European Central Bank working papers, no. 1237, August Checherita C, Rother P (2010) The impact of high and growing government debt on economic growth. An empirical investigation for the Euro Area. European Central Bank working papers, no. 1237, August
Zurück zum Zitat Clements B, Bhattacharya R, Nguyen TQ (2003) External debt, public investment, and growth in low-income countries. IMF working paper, 03/249 Clements B, Bhattacharya R, Nguyen TQ (2003) External debt, public investment, and growth in low-income countries. IMF working paper, 03/249
Zurück zum Zitat Deaton A (1991) Saving and liquidity constraints. Econometrica 59:1221–1248CrossRef Deaton A (1991) Saving and liquidity constraints. Econometrica 59:1221–1248CrossRef
Zurück zum Zitat DeLong BJ, Summers L (2012) Fiscal policy in a depressed economy. Brookings Pap Econ Act 44(1): 233–297 DeLong BJ, Summers L (2012) Fiscal policy in a depressed economy. Brookings Pap Econ Act 44(1): 233–297
Zurück zum Zitat Diamond P (1965) National debt in a neoclassical growth model. Am Econ Rev 55(5):1126–1150 Diamond P (1965) National debt in a neoclassical growth model. Am Econ Rev 55(5):1126–1150
Zurück zum Zitat Elmendorf D, Mankiw GN (1999) Government debt. In: Taylor JB, Woodford M (eds) Handbook of macroeconomics, vol 1. Elsevier, Amsterdam, pp 1615–1669CrossRef Elmendorf D, Mankiw GN (1999) Government debt. In: Taylor JB, Woodford M (eds) Handbook of macroeconomics, vol 1. Elsevier, Amsterdam, pp 1615–1669CrossRef
Zurück zum Zitat Fisher I (1933) The debt-deflation theory of great depressions. Econometrica 1:337–357CrossRef Fisher I (1933) The debt-deflation theory of great depressions. Econometrica 1:337–357CrossRef
Zurück zum Zitat Greenwald B, Stiglitz J (1993) Financial markets imperfections and business cycles. Q J Econ 108:77–114CrossRef Greenwald B, Stiglitz J (1993) Financial markets imperfections and business cycles. Q J Econ 108:77–114CrossRef
Zurück zum Zitat Kiyotaki N, Moore J (1997) Credit cycles. J Polit Econ 105(2):211–248CrossRef Kiyotaki N, Moore J (1997) Credit cycles. J Polit Econ 105(2):211–248CrossRef
Zurück zum Zitat Krugman P (1988) Financing vs forgiving a debt overhang. J Dev Econ 29:253–268CrossRef Krugman P (1988) Financing vs forgiving a debt overhang. J Dev Econ 29:253–268CrossRef
Zurück zum Zitat Minsky H (1982) Can “it” happen again? Essays on instability and finance. M.E. Sharpe, Armonk Minsky H (1982) Can “it” happen again? Essays on instability and finance. M.E. Sharpe, Armonk
Zurück zum Zitat Modigliani F (1961) Long-run implications of alternative fiscal policies and the burden of the national debt. Econ J 71(284):730–755CrossRef Modigliani F (1961) Long-run implications of alternative fiscal policies and the burden of the national debt. Econ J 71(284):730–755CrossRef
Zurück zum Zitat Panizza U, Presbitero A (2013) Public debt and economic growth in advanced economies: a survey. Swiss J Econ Stat 149:175–204CrossRef Panizza U, Presbitero A (2013) Public debt and economic growth in advanced economies: a survey. Swiss J Econ Stat 149:175–204CrossRef
Zurück zum Zitat Pattillo C, Poirson H, Ricci L (2002) External debt and growth. IMF working paper, 02/69 Pattillo C, Poirson H, Ricci L (2002) External debt and growth. IMF working paper, 02/69
Zurück zum Zitat Raberto M, Teglio A, Cincotti S (2012) Debt, deleveraging and business cycles: an agent-based perspective. Econ Open Access Open Assess E J 6:1–49CrossRef Raberto M, Teglio A, Cincotti S (2012) Debt, deleveraging and business cycles: an agent-based perspective. Econ Open Access Open Assess E J 6:1–49CrossRef
Zurück zum Zitat Reinhart CM, Rogoff KS (2010) Growth in a time of debt. Am Econ Rev 100(2):573–578CrossRef Reinhart CM, Rogoff KS (2010) Growth in a time of debt. Am Econ Rev 100(2):573–578CrossRef
Zurück zum Zitat Riccetti L, Russo A, Gallegati M (2013) Leveraged network-based financial accelerator. J Econ Dyn Control 37(8):1626–1640CrossRef Riccetti L, Russo A, Gallegati M (2013) Leveraged network-based financial accelerator. J Econ Dyn Control 37(8):1626–1640CrossRef
Zurück zum Zitat Sutherland D, Hoeller P, Merola R, Ziemann V (2012) Debt and macroeconomic stability. OECD Economics Department working papers, no. 1003, OECD Publishing Sutherland D, Hoeller P, Merola R, Ziemann V (2012) Debt and macroeconomic stability. OECD Economics Department working papers, no. 1003, OECD Publishing
Metadaten
Titel
Long-run consequences of debt
verfasst von
Siyan Chen
Saul Desiderio
Publikationsdatum
29.12.2016
Verlag
Springer Berlin Heidelberg
Erschienen in
Journal of Economic Interaction and Coordination / Ausgabe 2/2018
Print ISSN: 1860-711X
Elektronische ISSN: 1860-7128
DOI
https://doi.org/10.1007/s11403-016-0186-8

Weitere Artikel der Ausgabe 2/2018

Journal of Economic Interaction and Coordination 2/2018 Zur Ausgabe