IDEAS home Printed from https://ideas.repec.org/a/elg/ejeepi/v6y2009i2p247-270.html
   My bibliography  Save this article

Overconsumption, credit rationing and bailout monetary policy: A Minskyan perspective

Author

Listed:
  • Matthieu Charpe

    (International Labor Organization, Genve, Switzerland)

  • Peter Flaschel

    (Bielefeld University, Bielefeld, Germany)

  • Christian Proano

    (Macroeconomic Policy Institute (IMK), Duesseldorf, Germany)

  • Willi Semmler

    (New School University, New York, USA)

Abstract

We consider a Keynes-Goodwin model of effective demand and the distributive cycle where workers purchase goods and houses with a marginal propensity significantly larger than one. They therefore need credit, supplied from asset holders, and have to pay interest on their outstanding debt. In this initial situation, the steady state is attracting, while a marginal propensity closer to one makes it repelling. The stable excessive overconsumption case can easily turn from a stable boom to explosiveness and from there through induced processes of credit rationing into a devastating bust. In such a situation the central bank may prevent the worst by acting as creditor of last resort, purchasing loans where otherwise debt default (and bankruptcy regarding house ownership) would occur. This bail-out policy can stabilize the economy and also reduces the loss of homes of worker families.

Suggested Citation

  • Matthieu Charpe & Peter Flaschel & Christian Proano & Willi Semmler, 2009. "Overconsumption, credit rationing and bailout monetary policy: A Minskyan perspective," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 6(2), pages 247-270.
    • Handle: RePEc:elg:ejeepi:v:6:y:2009:i:2:p:247-270
    as

    Download full text from publisher

    File URL: http://www.elgaronline.com/view/journals/ejeep/6-2/ejeep.2009.02.09.xml
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Giovanni Dell’ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, March.
    2. Amitava Krishna Dutt, 2006. "Maturity, Stagnation And Consumer Debt: A Steindlian Approach," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 339-364, July.
    3. Peter Flaschel, 2009. "The Macrodynamics of Capitalism," Springer Books, Springer, number 978-3-540-87932-9, June.
    4. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dosi, Giovanni & Fagiolo, Giorgio & Napoletano, Mauro & Roventini, Andrea, 2013. "Income distribution, credit and fiscal policies in an agent-based Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1598-1625.
    2. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    3. repec:spo:wpmain:info:hdl:2441/gmkj8k1vf8tpbdue5q2emsepp is not listed on IDEAS
    4. repec:hal:spmain:info:hdl:2441/12hs8nng048qsb118kcsacukij is not listed on IDEAS
    5. Soon Ryoo, 2016. "Household debt and housing bubbles: a Minskian approach to boom-bust cycles," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 971-1006, December.
    6. Francesco Saraceno, 2014. "L'impact économique des fortes inégalités : problèmes et solutions," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 187-200.
    7. Roberto Veneziani & Luca Zamparelli & Maria Nikolaidi & Engelbert Stockhammer, 2017. "Minsky Models: A Structured Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1304-1331, December.
    8. Datta, Bikramaditya & Sethi, Rajiv, 2023. "The dynamics of leverage and the belief distribution of wealth," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 20-31.
    9. Colacchio, Giorgio, 2014. "Taxation, income redistribution and debt dynamics in a seven-equation model of the business cycle," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 140-165.
    10. Francesco Saraceno, 2014. "L'impact economique des fortes inégalités Problèmes et solutions," SciencePo Working papers Main hal-00991185, HAL.
    11. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    12. Matthieu Charpe & Peter Flaschel, 2011. "Worker debt, default ans diversity of financial fragility," IMK Working Paper 5-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    13. Francesco Saraceno, 2014. "High inequality and its impact on the economy [L'impact économique des fortes inégalités : problèmes et solutions]," Post-Print hal-01053897, HAL.
    14. repec:spo:wpmain:info:hdl:2441/12hs8nng048qsb118kcsacukij is not listed on IDEAS
    15. Francesco Saraceno, 2014. "High inequality and its impact on the economy [L'impact économique des fortes inégalités : problèmes et solutions]," SciencePo Working papers Main hal-01053897, HAL.
    16. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    17. Charpe, Matthieu & Flaschel, Peter, 2013. "Workers’ debt, default and the diversity of financial fragilities," Structural Change and Economic Dynamics, Elsevier, vol. 27(C), pages 48-65.
    18. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    19. Bikramaditya Datta & Rajiv Sethi, 2023. "The Dynamics of Leverage and the Belief Distribution of Wealth," Papers 2304.03436, arXiv.org.
    20. Greg Hannsgen & Tai Young-Taft, 2015. "Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility," Economics Working Paper Archive wp_839, Levy Economics Institute.
    21. Matthieu Charpe & Peter Flaschel & Christian R. Proaño, 2012. "Income Distribution, Credit Rationing And Households' Debt," Metroeconomica, Wiley Blackwell, vol. 63(3), pages 458-492, July.
    22. Soon Ryoo, 2013. "Minsky cycles in Keynesian models of growth and distribution," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(1), pages 37-60, January.
    23. repec:hal:spmain:info:hdl:2441/gmkj8k1vf8tpbdue5q2emsepp is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pagès, Henri, 2013. "Bank monitoring incentives and optimal ABS," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 30-54.
    2. Gerard Caprio & Asli Demirgüç-Kunt & Edward J. Kane, 2010. "The 2007 Meltdown in Structured Securitization: Searching for Lessons, not Scapegoats," The World Bank Research Observer, World Bank, vol. 25(1), pages 125-155, February.
    3. Ahn, Jung-Hyun & Breton, Régis, 2014. "Securitization, competition and monitoring," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 195-210.
    4. Shi, Lan & Zhang, Yan, 2015. "Appraisal inflation: Evidence from the 2009 GSE HVCC intervention," Journal of Housing Economics, Elsevier, vol. 27(C), pages 71-90.
    5. Gunther Tichy, 2010. "War die Finanzkrise vorhersehbar?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(4), pages 356-382, November.
    6. Stijn Claessens, 2010. "The Financial Crisis," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(2), pages 177-196, May.
    7. Patrick Honohan, 2008. "Risk Management and the Costs of the Banking Crisis," National Institute Economic Review, National Institute of Economic and Social Research, vol. 206(1), pages 15-24, October.
    8. Guillaume Vuillemey, 2015. "Derivatives markets : from bank risk management to financial stability [Les marchés de dérivés : gestion des risques bancaires et stabilité financière]," SciencePo Working papers Main tel-03507099, HAL.
    9. Lubello, Federico & Rouabah, Abdelaziz, 2024. "Securitization, shadow banking system and macroprudential regulation: A DSGE approach," Economic Modelling, Elsevier, vol. 131(C).
    10. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," FRB Atlanta Working Paper 2009-10, Federal Reserve Bank of Atlanta.
    11. Wu, Jyh-Lin & Hou, Han & Cheng, Su-Yin, 2010. "The dynamic impacts of financial institutions on economic growth: Evidence from the European Union," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 879-891, September.
    12. Shi, Lan & Zhang, Yan, 2018. "The effect of mortgage broker licensing under the originate-to-distribute model: Evidence from the U.S. mortgage market," Journal of Financial Intermediation, Elsevier, vol. 35(PA), pages 70-85.
    13. Giovanni Dell’ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, March.
    14. Nadauld, Taylor D. & Sherlund, Shane M., 2009. "The Role of the Securitization Process in the Expansion of Subprime Credit," Working Paper Series 2009-9, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    15. Patrick Honohan, 2009. "Bank Failures: The Limitations of Risk Modeling," World Scientific Book Chapters, in: Douglas D Evanoff & Philipp Hartmann & George G Kaufman (ed.), The First Credit Market Turmoil Of The 21st Century Implications for Public Policy, chapter 8, pages 103-123, World Scientific Publishing Co. Pte. Ltd..
    16. Luci Ellis, 2010. "The Housing Meltdown: Why Did It Happen in the United States?," International Real Estate Review, Global Social Science Institute, vol. 13(3), pages 351-394.
    17. Patir, Assaf, 2017. "Securitization, bank vigilance, leverage and sudden stops," MPRA Paper 81463, University Library of Munich, Germany.
    18. Matthew Botsch & Benjamin Iverson & Donald P. Morgan, 2008. "Seismic effects of the bankruptcy reform," Staff Reports 358, Federal Reserve Bank of New York.
    19. Jörg Bibow, 2010. "Alternative Strategien der Budgetkonsolidierung in Österreich nach der Rezession," IMK Studies 03-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    20. Soumya Datta, 2016. "Macrodynamics of debt-financed investment-led growth with interest rate rules," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(4), pages 593-624, October.

    More about this item

    Keywords

    mortgage loans; booms; debt default; busts; creditor of last resort;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:elg:ejeepi:v:6:y:2009:i:2:p:247-270. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Phillip Thompson (email available below). General contact details of provider: http://www.elgaronline.com/ejeep .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.