The outbreak of the financial crisis in 2008 witnessed a marked contraction in US consumption spending that had hitherto been boosted by historically high levels of household debt-financing. These events question the validity of conventional models of consumption based on the life-cycle...

We extend the principles of the Financial Instability Hypothesis (FIH) to the household sector by re-framing the three financial postures associated with the FIH (hedge, speculative, and Ponzi) in the context of households, using a simple model of household borrowing and debt-financing behavior....