Your English writing platform
Discover LudwigExact(9)
Leverage, balance sheet effects, self-reinforcing financial collapse — the details are different, but there are some clear common themes.
But even then it's far easier to just increase M. In any case, however, we are in a liquidity trap, and balance sheet effects are very important.
I've been arguing for years that when you're in a liquidity trap wage flexibility actually hurts rather than helps; this is the paradox of flexibility, which arises, roughly speaking, because under current conditions the aggregate demand curve is upward-sloping thanks to debt and balance sheet effects.
To be fair, in IS-LM type models that don't include balance sheet effects and also assume that we're not in the liquidity trap, it is the case that the level of employment is determined by M/w — the ratio of the money supply to the wage rate.
Or maybe worse than that: once we take balance sheet effects into account, the aggregate demand curve may well slope the "wrong" way, so that flexible wages and hence prices make things worse (pdf): That figure, by the way, is taken from a paper that is very much New Keynesian in its setup, although the basic insight can be expressed in IS-LM too.
More generally, the invariance of results across samples does suggest that bank-industry data goes a long way in detecting bank balance sheet effects.
Similar(51)
Eventually, the production crew felt that the sheet effect was not effective, and so the footage was blurred in order to create a "molecular transferal" effect.
Germany has the lowest incentive of any country to leave, despite its economic power and strong fiscal position, because it would suffer lower growth, possibly higher borrowing costs and a negative balance sheet effect, they said.
That's the infamous devaluation/balance sheet effect: Indonesia's private sector had lots of debt in dollars, so when the markets turned and the rupiah plunged, that debt ballooned relative to income and assets, causing a severe real-side crisis.
The Asian crisis experience suggested that sometimes the balance sheet effect could be larger than the trade effect.
Controlling for lender-year fixed effects to isolate the balance sheet effect, I find that credit supply by the same lender varies with interstate banking restrictions in different states.
Write better and faster with AI suggestions while staying true to your unique style.
Since I tried Ludwig back in 2017, I have been constantly using it in both editing and translation. Ever since, I suggest it to my translators at ProSciEditing.

Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com