Abstract
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).
| Original language | English |
|---|---|
| Pages (from-to) | 31-49 |
| Number of pages | 19 |
| Journal | European Journal of Economics and Economic Policies: Intervention |
| Volume | 11 |
| Issue number | 1 |
| DOIs | |
| State | Published - Apr 2014 |
ASJC Scopus Subject Areas
- Finance
- Economics and Econometrics
Keywords
- Consumption
- Household borrowing
- Household debt
- Relative income hypothesis
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