Matthieu Charpe

INCOME DISTRIBUTION, CREDIT RATIONING AND HOUSEHOLDS' DEBT

In this paper, we present a model of an economy with household debt, and discuss the conditions under which financial fragility arises. Financial instability is driven by distributive effects. In addition to the income transfers associated with interest payments, the accumulation of debt feeds back with the distribution of income between labour and capital. The model also gives a central role to banks and credit rationing. Contrary to the existing literature, credit supply does not depend on the characteristics of borrowers, but on those of banks. There is a feedback channel between the health of the financial system and the quantity of credit in the economy. We show that there is a diversity of channels through which financial fragility may arise. We identify three channels: a debt–deflation effect a la Fisher, a credit‐financed consumption boom and an exhilarating debt effect.

Expectations, Firms’ Indebtedness and Business Fluctuations in a Structural Keynesian Monetary Growth Framework

In this contribution we incorporate the main elements of the small-scale firms’ debt-finance model by Franke and Semmler (1989) into a medium-scale disequilibrium macroeconomic framework along the lines of Chiarella, Flaschel and Franke (2005). In a fully interdependent model incorporating investing firms, savings of rentier households, commercial banks and the government, the endogenously generated debt of firms (created through borrowing) feeds back dynamically to the investment behaviour of firms, their borrowing of funds, the asset market, the interest rate and the expected rate of return (representing the confidence of investors with regard to future development). The impact of debt-financing of firms on aggregate economic activity and its stability will be studied within this context. We also investigate the dynamics of the resulting model by means of numerical simulations.

Business Confidence and Macroeconomic Dynamics in a Nonlinear Two-Country Framework with Aggregate Opinion Dynamics

The main objective of the present paper is to investigate explicitly the role of the state of confidence for the macroeconomic dynamics of two interacting economies using the opinion dy- namics approach by Weidlich and Haag (1983) and Lux (1995). Particularly, the overall state of confidence in the world (two-country) economy plays not only for the dynamics of the nominal ex- change rate but also for the dynamics of the real economy through the determination of aggregate investment. This novel feature allows us to consider far richer international macroeconomic inter- actions than most standard models. Further, it features wage-price dynamics that interact with output and employment fluctuations – leading to a Goodwin (1967)-type of distributive cycle –, as well as debt dynamics due to a credit-financed investment behavior. The resulting framework is both advanced as well as flexible enough to generate various types of persistent fluctuations, and also complex dynamics.