ABSTRACT
This chapter enlarges the perspective and model an economy based on household debt and discusses under which conditions it is prone to financial instability. It investigates, by means of theoretical model in the tradition of Goodwin and Kalecki, as in Charpe et al, the link between the health of the financial system and the quantity of credit in the economy, with the distributive elements being modeled in a more precise manner as in the latter study, among other things. Two main results are worth highlighting: First, the debt of households creates new subcases to the usual wage-led, profit-led demand typologies put forward by Bhaduri and Marglin and recently analyzed in Proano et al. Second, financial fragility takes place through a variety of channels depending on the characteristics of the economy, in particular depending on the demand typologies and the degree of credit rationing. The chapter explains the conditions under which macrofinancial instability arises for both cases, overconsumption and excessive overconsumption.
