Abstract:Abstract. This paper extends the endowment economy model of Eggertsson and Krugman (2012) by allowing for various durations of financial contracts. This extension might change the way that monetary policy affects the economy. Lower nominal interest rate appreciates the real value of outstanding long term debt and forces indebted consumers to cut their consumption. This contractionary effect partially offsets the standard expansionary effect of low interest rates. Longer financial contracts make this unconventi… Show more
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