Household debt in many advanced economies has increased significantly since the 1980s and accelerated in the years prior to the Great Recession, resulting in an aggregate reduction of saving rates in the developed economies. Some of those economies are now deleveraging, which may be affecting...

Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how...