The current macroeconomic development of the USA as well as of most major industrial economies is characterised by boom-bust cycles. Such boom-bust cycles start with overconfidence, expectations of high returns and overleveraging. Often an asset price boom goes hand in hand with a credit boom and rising prices. When a downturn is triggered, often initiated by a sudden bankruptcy or similar event, frequently entailing long-term protracted periods of low growth and low employment, prices may fall and periods of debt deflation are experienced. Normally such boom-bust cycles are driven by specific sectors in the economy. In the most recent boom-bust cycle, the credit sector and the real estate sector were the main driving forces.

To study such phenomena, this book takes a macroeconomic perspective. It uses a dynamic framework that builds on the theoretical tradition of non-clearing markets.