Applying Disequilibrium Growth Theory: Debt E ects and Debt De ation

In this paper we consider two polar dynamical models in which rms use debt (loans) to nance their investment expenditure, a three-dimensional supply driven one and a sophisticated 20D Keynesian growth model. In the rst type of model debt accumulation of rms interacts with income distribution and resulting capital stock and employment growth patterns. In the second high dimensional model we have in particular sluggishly adjusting prices and quantities, Keynesian demand rationing and uctuating capacity utilization for both labor and capital with all budget equations speci ed and a balanced growth reference path. These two polar growth perspectives are brought together in an intermediate 4D dynamics where debt accumulation of the simple model is combined with the possibility for de ationary processes of the general model. This intermediate case allows us to formulate and investigate, both analytically and numerically, situations of debt de ation in a demand constrained setup which augments the insights obtained from simple model and illustrates an important destabilizing feedback chain of the general 20D dynamics.