Date Added: Nov 2010
Recent research finds that corporate leverage affects macroeconomic dynamics and can contribute to financial fragility. The authors show that consumer debt is also important. They add consumer debt to a stock-flow consistent neo-Kaleckian growth model and explore the macrodynamic ramifications. Consumer debt influences effective demand, the profit rate, and economic growth. Unsurprisingly, laxer consumer credit constraints stimulate growth in the short run. However, the long-run effects may be growth reducing. Looser consumer credit can also make the system more vulnerable to changes in the state of confidence, the interest rate, and the saving propensity of renters.