IDEAS home Printed from https://ideas.repec.org/p/new/wpaper/2106.html
   My bibliography  Save this paper

Debt-led growth and its financial fragility: an investigation into the dynamics of a supermultiplier model

Author

Listed:
  • Joana David Avritzer

    (Department of Economics, Connecticut College and IRID-UFRJ)

Abstract

This paper discusses the financial sustainability of demand-led growth models. We assume a supermultiplier growth model in which household consumption is the autonomous component of demand that drives growth and discuss the financial sustainability of such dynamics of growth from the perspective of the working households. We show that for positive rates of growth the model converges to an equilibrium where worker households are accumulating debt and not wealth. We also show that when the economy is growing at a rate that is positive, and between 2% and 4.4%, the dynamics of the model also implies that households will not be able to service their debt at the point of full long run equilibrium. We then conclude that this household debt-financed consumption pattern of economic growth generates an internal dynamic that leads to financial instability.

Suggested Citation

  • Joana David Avritzer, 2021. "Debt-led growth and its financial fragility: an investigation into the dynamics of a supermultiplier model," Working Papers 2106, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:2106
    as

    Download full text from publisher

    File URL: http://www.economicpolicyresearch.org/econ/2021/NSSR_WP_062021.pdf
    File Function: First version, 2021
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Household debt dynamics; debt-financed consumption; growth and financial fragility;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:new:wpaper:2106. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Mark Setterfield (email available below). General contact details of provider: https://edirc.repec.org/data/denewus.html .

    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.