Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/318545 
Year of Publication: 
2025
Series/Report no.: 
KOF Working Papers No. 524
Publisher: 
ETH Zurich, KOF Swiss Economic Institute, Zurich
Abstract: 
Producers can leverage their bargaining power vis-'a-vis consumers by entering bargaining with debt. We discover novel general-equilibrium effects of such strategic debt by developing a money-search framework featuring heterogeneous consumers. Debt distorts trade along two margins: it destroys matches with low-preference consumers and it tightens liquidity constraints within matches. While the fiscal authority can fully eliminate strategic debt through taxation, in its absence, monetary policy can partially curb it by deviating from the Friedman rule-raising nominal rates up until 0.51%. Finally, we show that producers can leverage their bargaining power even more effectively with contracts different from debt.
Subjects: 
bargaining
money search
strategic debt
JEL: 
C78
D86
E52
G32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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