Fiscal Buffers, Private Debt, and Stagnation : The Good, the Bad and the Ugly

We revisit the empirical relationship between private/public debt and output, and build a model that reproduces it. In the model, the government provides financial assistance to credit-constrained agents to mitigate deleveraging. As we observe in the data, surges in private debt are potentially more damaging for the economy than surges in public debt. The model suggests two policy implications. First, capping leverage leads to milder recessions, but also implies more muted expansions. Second, with fiscal buffers, financial assistance to credit-constrained agents helps avoid stagnation. The growth returns from intervention decline as the government approaches the fiscal limit.
Publication date: May 2016
ISBN: 9781484365502
$18.00
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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Economics- Macroeconomics , Economics- Macroeconomics , Economics / General , Economics / General , International - Economics , International - Economics , private debt , public debt , borrowing constraints , fiscal limits , DSGE

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