Debt deflation , secular stagnation , Euro area , interest rate spread , multi regime model
Abstract:
Academic research and policy makers in the Euro area are currently concerned
with the threat of debt deflation and secular stagnation in Europe. Empirical evidence
seems to suggest that secular stagnation and debt deflation in the Euro area
may be rather slowly developing. Yet what appears as major peril is that debt deflation
with a lack of economic growth, rising real interest rates and further rising
debt may trigger household defaults, defaults of firms and banks, rise of risk premia,
and default risk of certain sectors of the economy or sovereign defaults. It is this
rising default and financial risk then that may lead to a regime change to a slowly
moving debt crisis with high financial risk and high financial stress. In order to explore
those issues, a macro policy model of Svensson type is introduced, exhibiting
a regime of low and high financial stress. Then, a four dimensional multi-regime
VAR is employed to an Euro area data set to support the theoretical model and the
claim that in particular Southern Euro area countries are affected by debt deflation
and financial market stress.
Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.
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