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...

There has been a long discussion about the employment impact of minimum wages and this discussion has recently been renewed with the introduction of an economy-wide, binding minimum wage in Germany in 2015. In traditional reasoning, based on the allocational approach of modern labour market...

We study the transmission of monetary policy in the presence of heterogeneous households and examine the implications when the share of constrained households is a function of monetary policy. We build an analytically tractable heterogeneous agent New Keynesian model (THANK) with an endogenous...