TT - 01. Deleveraging and Liquidity Traps

Question 1

Fornaro and Romei (2016)

Answer 1

Liquidity traps arise during private sector debt deleveraging

Question 2

Midrigan and Philippon (2013)

Answer 2

US: levergaging and employment

Question 3

Martin and Philippon (2015)

Answer 3

EU: levergaging and employment

Question 4

Eggertsson and Krugman (2013)

Answer 4

Closed economy with patient and impatient households - impatient are borrowing constrained and deleveraging shock forced them to reduce debt –> Fall in AD –> Fall in real natural interest rate stimulating patient HH demand

If real rate does not fall enough then insufficient demand to support full employment –> Recession!

Question 5

Benigno, Eggertsson and Romei (2014)

Answer 5

Deleveraging in a standard NKM

Question 6

Fisher (1933)

Answer 6

Debt deflationary effects

Question 7

Fornaro (2013)

Answer 7

Transfer from creditors to debtors can make everyone better off in a liquidity trap caused by deleveraging shock