On the relationship of money supply, consumer demand, demographics and debt
by Gökhan Cebiroğlu; Stephan Unger
International Journal of Public Policy (IJPP), Vol. 15, No. 3/4, 2019

Abstract: We show that consumer-based economies tend to suffer from demand saturation after an initial and prolonged period of growth. Saturation triggers a Minsky super-cycle, characterised by high debt, high income inequality and financial instability. We argue that monetary policies such as negative interest rates and yield curve targeting can be effective in combating recessionary conditions in an unsaturated economy, but yield to problems in a saturated economy as misallocations may generate bubbles. We find that maintaining a growth rate which corresponds to the demand growth rate at which consumers replenish their stock of goods, smooth out the business cycle in an unsaturated economy, while technological development and demographic modification is the only possible way to prevent or combat the saturation of an economy.

Online publication date: Mon, 14-Oct-2019

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