We propose a theory of indebted demand, capturing the idea that large debt burdens by households and governments lower … aggregate demand, and thus natural interest rates. At the core of the theory is the simple yet under-appreciated observation …

spending - combined with investment theory - to estimate the discount rates used by managers. The standard story predicts that … between 15.1% and 45.2% too much capital. These estimates suggest that, even before they burst, bubbles adversely affect … economic activity by misallocating capital. -- bubbles ; investment ; stock markets ; real effects of financial markets …