Workers’ debt, default and the diversity of financial fragilities

  • Matthieu Charpea, Peter Flaschelb
  • Published 2016

Abstract

This paper presents a model addressing the conditions under which financial instability arises in the event of household debt. The model addresses two main cases. First, household debt is affected by functional income distribution. Second, household debt is affected by credit supply and depends on bank performance. The model shows that financial fragility arises through a Fisher effect in the first case and through a debt financed consumption boom in the second case. The model then explores two extensions. First, we raise the question of debt default and its impact on financial instability. Second, we discuss the ability of capital adequacy ratio to limit financial instability. © 2013 Elsevier B.V. All rights reserved.

Cite this paper

@inproceedings{Charpea2016WorkersDD, title={Workers’ debt, default and the diversity of financial fragilities}, author={Matthieu Charpea and Peter Flaschelb}, year={2016} }