Long-run consequences of debt in a stock-flow consistent network economy

Desiderio, Saul and Chen, Siyan (2012): Long-run consequences of debt in a stock-flow consistent network economy.

Abstract

In this paper we develop a theoretical framework to analyze the long-run behavior of an economy characterized by a regime of persistent debt. We introduce a stock-flow consistent dynamic model where the economic system is represented by a network of trading relationships among agents. Debt contracts are one of such relationships. The model is characterized by a unique and stable steady-state, which predicts that (i) aggregate income is always limited from the above by the money supply and that (ii) debts cause a redistribution of borrowers' wealth and income in favor of lenders. In the aggregate this may also lower nominal income, as empirical evidence suggests.

• Item Type: MPRA Paper
• Language: English
• Keywords: Debt; stock-flow consistency; dynamic systems
• Subjects: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis

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