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 that borrowers and savers differ in their marginal...

This paper proposes a tractable framework to analyze fiscal space and the dynamics of government debt, with a possibly binding zero lower bound (ZLB) constraint. Without the ZLB, a greater primary deficit unambiguously raises debt. However, debt need not explode: When R G - φ, where φ is the...

During the first decade of the 21st century, the United States witnessed a dramatic rise in household debt followed by a severe default crisis. In this study, we review the existing literature and provide new evidence supporting the credit supply view of the episode, which holds that an increase...

During the first decade of the 21st century, the United States witnessed a dramatic rise in household debt followed by a severe default crisis. In this study, we review the existing literature and provide new evidence supporting the credit supply view of the episode, which holds that an increase...

We show that firm demand-side factors are strong drivers of procyclical refinancing be- havior over the credit cycle using novel data from the Shared National Credit program. Firms are more likely to refinance early when credit conditions are good to keep the ef- fective maturity of their loans...