Yun K. Kim
Multi-equation econometric frameworks are used to investigate the impact of household debt on GDP in the US. In the vector autoregression analysis capturing the transitory feedback effects, we observe a bidirectional positive feedback process between aggregate income and debt. According to the estimation of vector error correction models, there are negative long-run relationships between household debt and output. These empirical results provide a support for the view of the debt-driven business cycles.
Mark Setterfield and Yun K. Kim
We first show that, with a Kaleckian structure that is consistent with , the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers’ consumption behavior, under different assumptions about how debt is serviced. Our results demonstrate that borrowing and emulation transform the relationship between distribution and growth, giving rise to the possibility of a ‘consumption-driven, profit-led’ growth regime () and what we call the ‘paradox of inequality.’ A key conclusion is that the wage- or profit-led characteristics of the growth process, rather than being invariant, can be altered by social constructs such as borrowing and consumption norms that change over time.
Yun K. Kim, Mark Setterfield and Yuan Mei
We develop a Keynesian model of aggregate consumption. Our theory emphasizes the importance of the relative income hypothesis and debt finance for understanding household consumption behavior. It is shown that particular importance attaches to how net debtor households service their debts, and that the treatment of debt-servicing commitments as a substitute for savings by these households creates the potential for ‘sudden stops’ in consumption spending (and hence aggregate demand).