Economic Models in the Aftermath of the Financial Crisis–the Deflationary Equilibrium and the Managed Growth of Debt

         
Author Name KOBAYASHI Keiichiro (Faculty Fellow, RIETI)
Creation Date/NO. October 2019 19-P-027
Research Project Microeconomics, Macroeconomics, and Political Philosophy toward Economic Growth
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Abstract

This paper compares the standard models of macroeconomics before and after the global financial crisis. It shows that the standard models cannot address crucial issues such as the growth and collapse of asset-price bubbles and the deflationary stagnation in the aftermath of the crisis. The problem comes from the transversality condition (TVC). We consider a new theoretical model in which the TVC does not hold in the equilibrium. The findings present new implications for the deflationary equilibrium and growing government debt.