Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174919
Authors: 
Illing, Gerhard
Ono, Yoshiyasu
Schlegl, Matthias
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6796
Abstract: 
Why do advanced economies fall into prolonged periods of economic stagnation, particularly in the aftermath of credit booms? We present a model of persistent aggregate demand shortage based on strong liquidity preferences of households, in which we incorporate financial imperfections to study the interactions between debt, liquidity and asset prices. We show that financially more deregulated economies are more likely to experience persistent stagnation. In the short run, credit booms can mask this structural aggregate demand deficiency. However, the resulting debt overhang permanently depresses spending in the long run since deleveraging becomes self-defeating because of debt deflation. These findings are in line with the macroeconomic developments in Japan during its lost decades and other advanced economies before and during the Great Recession.
Subjects: 
secular stagnation
aggregate demand deficiency
liquidity preferences
financial frictions. leverage
JEL: 
E41
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.