This is a chapter co-authored with Saed Khalil in the forthcoming volume in honour of Wynne Godley, edited by Dimitri Papadimitriou.
Abstract. The aim of this chapter is to map out the macroeconomic effects of a sustained debt-deflation within a small open economy. We build a 2 country stock flow consistent model, and show the effects of a debt-deflation cycle on households, firms, banks, the government, and the central bank in each country. We find price collapses across the economy can sustain a downturn, even as other areas of the economy experience a return to growth. Within a currency union, with one small country experiencing a deflation, only transfers from the larger country, and increased government expenditure, can bring the economy out of a deflationary spiral.
Update, link fixed, thanks Ramanan!
[Download the paper, (.pdf, 20mb]
Steve,
The linked paper is some other paper. Good to know that such a book is coming out. Any link to the publisher's website ?
I can't download this paper, maybe the link is wrong?
Liu I'll fix it, thanks!