We study a dynamic model in which the interaction between debt accumulation and asset prices magnifies credit booms and busts. We find that borrowers do not internalize these feedback effects and therefore suffer from excessively large booms and busts in both credit flows and asset prices. We...

Capitalism since its inception has been marked by large fluctuations. The resulting episodic unemployment has been very costly. This paper provides an overview of alternative theories. Standard models (such as DSGE) have not provided insights into the causes of the fluctuations and the shocks...

This paper considers two central problems in our statistical frameworks which impair the ability to use wealth to assess economic sustainability or the impacts of economic downturns. Some increases in wealth may reflect increased economic rents--in particular, land and exploitation rents--and...

Schumpeter argued that economic downturns had positive effects, in the incentives that it provided for firms to increase their efficiency. Part 1. provides a simple model confirming Schwnpeter's insight At thesame time, the model shows that there are real costs to economic fluctuations which...

This paper provides a critique of standard theories of money, in particular those based on money as a medium of exchange. Money is important because of the relationship between money and credit. The process of judging credit worthiness, in which banks play a central role, involves the collection...

But episodically, the "shock" is deeper. It is structural. Among advanced countries, the movement from agricultural to manufacturing in the last century, and the more recent movement from manufacturing to the service sector reflect such a large economic transformation. The associated downturns...

This paper analyzes the economic impact of the pandemic, providing insights into the consequences of alternative policies. Our framework focuses on three key features: (a) Covid-19 is a sectoral shock of unknown depth and duration affecting some sectors and technologies more than others; (b)...

What can explain the large changes in aggregate demand that occur in the absence of any seemingly corresponding shock to the underlying state variables of the economy? We show that macroeconomic volatility can arise from dispersions of beliefs among agents. These dispersions give rise to bets...

This paper provides an explanation for situations in which the state variables describing the economy do not change, but aggregate consumption experiences significant changes. We present a theory of pseudo-wealth--individuals' perceived wealth that is derived from heterogeneous beliefs and...

We explore the properties of a credit network characterized by inside credit - i.e. credit relationships connecting downstream (D) and upstream (U) firms - and outside credit - i.e. credit relationships connecting firms and banks. The structure of the network changes over time due to the...