The outbreak of the financial crisis in 2008 witnessed a marked contraction in US consumption spending that had hitherto been boosted by historically high levels of household debt-financing. These events question the validity of conventional models of consumption based on the life-cycle...

We empirically examine the relationship between U.S. output and household debt. To account for structural change due to financial liberalization, we divide the sample at the fourth quarter of 1982. We find structural differences between earlier and later business cycles for the U.S. household...

While much attention has been focused on the financial woes of the US economy in the wake of the Great Recession, this chapter focuses on an important real sector imbalance: the failure of real wages to keep pace with productivity growth over the past three decades. This imbalance is shown to...

This chapter argues that, while much attention has been paid to developments in the financial sector as causes of the Great Recession, the ultimate cause of the crisis was, in fact, longer term trends in the real economy. Specifically, it is argued that the tendency for real wages to grow slower...

We develop a Keynesian model of aggregate consumption. Our theory emphasizes the importance of the relative income hypothesis and debt finance for understanding household consumption behavior. It is shown that particular importance attaches to how net debtor households service their debts, and...

We develop a Keynesian model of aggregate consumption. Our theory emphasizes the importance of the relative income hypothesis and debt finance for understanding household consumption behavior. It is shown that particular importance attaches to how net debtor households service their debts, and...