Title: On the relationship of money supply, consumer demand, demographics and debt
Authors: Gökhan Cebiroğlu; Stephan Unger
Addresses: Faculty of Business, Economics and Statistics, University of Vienna, Oskar-Morgenstern-Platz 1, 1090 Vienna, Austria ' Department of Economics and Business, Saint Anselm College, Saint Anselm Drive 100, Manchester, NH, USA
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.
Keywords: monetary policy; fiscal policy; inflation; money supply; debt deflation; GDP; T-bills.
International Journal of Public Policy, 2019 Vol.15 No.3/4, pp.187 - 205
Accepted: 11 Dec 2018
Published online: 14 Oct 2019 *