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The basic model
How do agents react to losses?
2 other sections not shown
agents aggregate demand aggregate spending appendix A1 asset holdings asset market asset price decline banking system Ben Bernanke Bernanke channels of debt-deflation constant indebtedness consumption and assets consumption spending contain their indebtedness Containing indebtedness credit contraction credit crunch credit intermediation debt structure debt-deflation process deflation deposits Depression deviations distress selling emphasised endogenous equals equilibrium prices Euler equation exceeds feedback financial distress Fisher and Minsky Hence high indebtedness Hyman Minsky implies intertemporal budget constraint large shocks ln other words loan losses loss Q margin requirements market clearing market equilibrium mid-age firms default Minsky's monetary nominal debt non-performing loans old firms optimal policy optimal user cost payment Pigou effect policy of user positive price level reactions refinancing relative to steady repayment sales revenue sell assets spending on consumption stability Tobin unstable debt-deflation user cost spending wage rigidity wealth effect wide-spread default young firms