We develop a model with diagnostic expectations (DE) and a financial accelerator (FA) that generates mutually reinforcing shock amplification, especially in the case of demand shocks. However, supply shocks can be dampened via a debt deflation channel, which is strengthened amid DE. Importantly,...

Many countries find themselves with elevated debt levels, increased debt vulnerabilities, and tight financing conditions, while also facing increased spending needs for development and transition to a greener economy. This paper aims to place the current debt landscape in a historical context...