Indebted Demand
Abstract We propose a theory of indebted demand, capturing the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest. At the core of the theory is the simple yet underappreciated observation that borrowers and savers differ in their marginal propensities to save...
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| Veröffentlicht in: | The Quarterly journal of economics 2021-11, Vol.136 (4), p.2243-2307 |
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| container_title | The Quarterly journal of economics |
| container_volume | 136 |
| creator | Mian, Atif Straub, Ludwig Sufi, Amir |
| description | Abstract
We propose a theory of indebted demand, capturing the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest. At the core of the theory is the simple yet underappreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent perpetual-youth model, we find that recent trends in income inequality and financial deregulation lead to indebted household demand, pushing down the natural rate of interest. Moreover, popular expansionary policies—such as accommodative monetary policy—generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. Escaping a debt trap requires consideration of less conventional macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality. |
| doi_str_mv | 10.1093/qje/qjab007 |
| format | Article |
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We propose a theory of indebted demand, capturing the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest. At the core of the theory is the simple yet underappreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent perpetual-youth model, we find that recent trends in income inequality and financial deregulation lead to indebted household demand, pushing down the natural rate of interest. Moreover, popular expansionary policies—such as accommodative monetary policy—generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. Escaping a debt trap requires consideration of less conventional macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.</description><identifier>ISSN: 0033-5533</identifier><identifier>EISSN: 1531-4650</identifier><identifier>DOI: 10.1093/qje/qjab007</identifier><language>eng</language><publisher>Oxford University Press</publisher><subject>Einkommensverteilung ; Gesamtwirtschaftliche Nachfrage ; Liquiditätspräferenz ; Natürlicher Zins ; Overlapping Generations ; Private Verschuldung ; Sparen ; Säkulare Stagnation ; Vermögensverteilung</subject><ispartof>The Quarterly journal of economics, 2021-11, Vol.136 (4), p.2243-2307</ispartof><rights>The Author(s) 2021. Published by Oxford University Press on behalf of the President and Fellows of Harvard College. 2021</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c354t-5634a5a460fe3964acbfbfa07e58c0761a51a8c9f8e67d0ab2e4d0b10b82b34c3</citedby><cites>FETCH-LOGICAL-c354t-5634a5a460fe3964acbfbfa07e58c0761a51a8c9f8e67d0ab2e4d0b10b82b34c3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>314,780,784,1584,27924,27925</link.rule.ids></links><search><creatorcontrib>Mian, Atif</creatorcontrib><creatorcontrib>Straub, Ludwig</creatorcontrib><creatorcontrib>Sufi, Amir</creatorcontrib><title>Indebted Demand</title><title>The Quarterly journal of economics</title><description>Abstract
We propose a theory of indebted demand, capturing the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest. At the core of the theory is the simple yet underappreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent perpetual-youth model, we find that recent trends in income inequality and financial deregulation lead to indebted household demand, pushing down the natural rate of interest. Moreover, popular expansionary policies—such as accommodative monetary policy—generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. Escaping a debt trap requires consideration of less conventional macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.</description><subject>Einkommensverteilung</subject><subject>Gesamtwirtschaftliche Nachfrage</subject><subject>Liquiditätspräferenz</subject><subject>Natürlicher Zins</subject><subject>Overlapping Generations</subject><subject>Private Verschuldung</subject><subject>Sparen</subject><subject>Säkulare Stagnation</subject><subject>Vermögensverteilung</subject><issn>0033-5533</issn><issn>1531-4650</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2021</creationdate><recordtype>article</recordtype><recordid>eNp9jz1LA0EURQdRcI1i4R9IZSOr7-XN15YSowYCNlovb2bfQILZjTux8N-7YQN2FpfbHO7lKHWDcI9Q0cPXRoZwAHAnqkBDWGpr4FQVAESlMUTn6iLnDQCgR12o62XbSNhLM32SLbfNpTpL_Jnl6tgT9fG8eJ-_lqu3l-X8cVVGMnpfGkuaDWsLSaiymmNIITE4MT6Cs8gG2ccqebGuAQ4z0Q0EhOBngXSkibobd2Pf5dxLqnf9esv9T41QH1zqwaU-ugz0dKQldu06_7FuuHJo7QG5HZHue_fv1i_QP1Ny</recordid><startdate>20211101</startdate><enddate>20211101</enddate><creator>Mian, Atif</creator><creator>Straub, Ludwig</creator><creator>Sufi, Amir</creator><general>Oxford University Press</general><scope>OQ6</scope><scope>AAYXX</scope><scope>CITATION</scope></search><sort><creationdate>20211101</creationdate><title>Indebted Demand</title><author>Mian, Atif ; Straub, Ludwig ; Sufi, Amir</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c354t-5634a5a460fe3964acbfbfa07e58c0761a51a8c9f8e67d0ab2e4d0b10b82b34c3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2021</creationdate><topic>Einkommensverteilung</topic><topic>Gesamtwirtschaftliche Nachfrage</topic><topic>Liquiditätspräferenz</topic><topic>Natürlicher Zins</topic><topic>Overlapping Generations</topic><topic>Private Verschuldung</topic><topic>Sparen</topic><topic>Säkulare Stagnation</topic><topic>Vermögensverteilung</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Mian, Atif</creatorcontrib><creatorcontrib>Straub, Ludwig</creatorcontrib><creatorcontrib>Sufi, Amir</creatorcontrib><collection>ECONIS</collection><collection>CrossRef</collection><jtitle>The Quarterly journal of economics</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Mian, Atif</au><au>Straub, Ludwig</au><au>Sufi, Amir</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Indebted Demand</atitle><jtitle>The Quarterly journal of economics</jtitle><date>2021-11-01</date><risdate>2021</risdate><volume>136</volume><issue>4</issue><spage>2243</spage><epage>2307</epage><pages>2243-2307</pages><issn>0033-5533</issn><eissn>1531-4650</eissn><abstract>Abstract
We propose a theory of indebted demand, capturing the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest. At the core of the theory is the simple yet underappreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent perpetual-youth model, we find that recent trends in income inequality and financial deregulation lead to indebted household demand, pushing down the natural rate of interest. Moreover, popular expansionary policies—such as accommodative monetary policy—generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. Escaping a debt trap requires consideration of less conventional macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.</abstract><pub>Oxford University Press</pub><doi>10.1093/qje/qjab007</doi><tpages>65</tpages></addata></record> |
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| identifier | ISSN: 0033-5533 |
| ispartof | The Quarterly journal of economics, 2021-11, Vol.136 (4), p.2243-2307 |
| issn | 0033-5533 1531-4650 |
| language | eng |
| recordid | cdi_crossref_primary_10_1093_qje_qjab007 |
| source | Business Source Complete; Oxford University Press Journals All Titles (1996-Current) |
| subjects | Einkommensverteilung Gesamtwirtschaftliche Nachfrage Liquiditätspräferenz Natürlicher Zins Overlapping Generations Private Verschuldung Sparen Säkulare Stagnation Vermögensverteilung |
| title | Indebted Demand |
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