Leverage Dynamics and the Burden of Debt

Mikael Juselius, Mathias Drehmann

Research output: Contribution to journalArticleScientificpeer-review

8 Citations (Scopus)

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 languageEnglish
Peer-reviewed scientific journalOxford Bulletin of Economics and Statistics
Volume82
Issue number2
Pages (from-to)347-364
Number of pages18
ISSN0305-9049
DOIs
Publication statusPublished - 01.04.2020
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Debt service
  • Debt
  • Economic shock
  • Great Recession, 2008-2013
  • Recessions

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