Three interrelated aspects typical of most financial crisis of domestic origin are brought together in a model in this paper. The first aspect is debt financed consumption boom supported by rising asset prices which ultimately leads to credit crunch and debt deflation as lenders lose confidence...

The paper explains a curious redirection of economic policies that uses the policy framework of Kalecki and Keynes only to undermine it. It does not negate their theory of demand management, but reformulates it to serve the powerful interests of finance in the era of financial globalisation. As...

This paper tests the long run risk and valuation risk model using a robust estimation procedure. The persistent long run component of consumption growth process is proxied by a news based index that is created using a random forest algorithm. This news index is shown to predict aggregate long...

We want to explain the rise of household debt in the US since 1980. We present a mechanism that is consistent with the following stylized facts: (i) Real mortgage debt, (ii) debt-service-to-income ratios and (iii) house sizes (in sqft) have increased since the 1980 across all income quintiles....

This paper investigates the macroeconomic effects of uncertainty originating in the financial sector. My contribution is twofold. First, I document empirical relevenace of financial uncertainty using SVAR methods. Then, I employ the DSGE framework developed by Gertler and Karadi (2011) to...

How sizable is the wealth effect on consumption in euro area countries? To address this question, we use newly available harmonized euro area wealth data and the methodology in Carroll et al. (2011b). We find that the marginal propensity to consume out of total wealth averaged across the largest...

According to economie theory, the intertemporal budget constraint of households implies that a permanent increase in wealth should have a positive effect on consumer spending. Given the comparatively strong increase in Swiss household wealth over the past few years, the question of the extent to...

Why do countries tend to repay their domestic and external debt, even though the legal enforcement of the sovereign debt contract is limited? Contrary to conventional wisdom, we argue that temporary market exclusion after default is costly. When the domestic financial market is characterized by...

The low nominal interest rate environment is a hotly debated phenomenon among politicians, financial market participants and households. Savers fear the erosion of their retirement savings, while financial supervisors warn of the stability risks caused by declining bank profitability and by the...

I use new micro data to study the effects of credit deregulation on the Norwegian household savings decline in the mid-1980s. This paper has three main findings. First, the decline in saving started in 1983, a couple of years earlier than previously thought on the basis of National Accounts...