Deleveraging crises and deep recessions: a behavioural approach

Abstract : Macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings. Standard micro-founded macro-economic models account for these patterns through exogenous and persistent shocks. In this paper, we develop a fully decentralized and micro-founded macro-economic agent-based model, augmented with an opinion model, which produces endogenous waves of pessimism and optimism that feed back into firms' leverage and households' precautionary saving behaviour. A major emergent property of our model is precisely the complex successions of stable and unstable macro-economic regimes. The model is further able to account for a wide spectrum of macro-and micro empirical regularities. Within this framework, we analyse a series of macro-economic phenomena of key relevance in the current macro-economic debate, especially the occurrence of deleveraging crises and Fisherian debt-deflation recessions. Our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflation-ary path are critical determinants of the severity of the recession, and the chances of recovery.
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Submitted on : Thursday, January 29, 2015 - 6:27:09 PM
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Pascal Seppecher, Isabelle Salle. Deleveraging crises and deep recessions: a behavioural approach. Applied Economics, Taylor & Francis (Routledge), 2015, 47 (34-35), pp.3771-3790. ⟨⟩. ⟨10.1080/00036846.2015.1021456⟩. ⟨hal-01111204⟩



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