Abstract
In addition to leverage, the debt service burden of households and firms is an important link between financial and real developments at the aggregate level. Using US data from 1985 to 2017, we find that the debt service burden has sizeable negative effects on expenditure. Its interplay with leverage also explains several data puzzles, including the lack of above‐trend output growth during credit booms and the severity of ensuing recessions, without appealing to large shocks or nonlinearities. Estimating the model with data up to 2005, it predicts credit and expenditure paths that closely match actual developments before and during the Great Recession.
Original language | English |
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Peer-reviewed scientific journal | Oxford Bulletin of Economics and Statistics |
Volume | 82 |
Issue number | 2 |
Pages (from-to) | 347-364 |
Number of pages | 18 |
ISSN | 0305-9049 |
DOIs | |
Publication status | Published - 01.04.2020 |
MoE publication type | A1 Journal article - refereed |
Keywords
- 511 Economics
- Debt service
- Debt
- Economic shock
- Great Recession, 2008-2013
- Recessions