The interaction of debt and economic performance has been getting more at-tention over the last few years. However, models making provision for debt are still out-numbered by models completely ignoring it. This paper is the first one to analyze therelationship between household debt (in the form...

Money illusion is "frequently invoked and frequently resisted" by economists. Resisted as it contradicts the maximizing paradigm of microeconomic theory and invoked since a tendency to think in nominal rather than real terms becomes evident in the behavior of agents. This paper rationalizes...