The "Rajan hypothesis" : a counter-factual experiment

Matteo Coronese, Isabelle Salle

We integrate a centralized wage bargaining process into an otherwise standard DSGE model with a financial accelerator to simulate distributional shocks in the presence of financial instability. Our framework provides a counterfactual analysis of the effects of the observed decrease in the labor share when no concomitant rise in households' credit offsets the adverse effect on consumption. The result is a prolonged under-consumption recession that outweighs the initial boost in investment.

MoreLess

Year of publication:	January 8, 2018
Authors:	Coronese, Matteo ; Salle, Isabelle
Publisher:	Pisa, Italy : LEM, Laboratory of Economics and Management, Institute of Economics, Scuola Superiore Sant'Anna
Subject:	Income inequality \| Distributional shocks \| Under-consumption \| Einkommensverteilung \| Income distribution \| Schock \| Shock \| Theorie \| Theory \| Experiment