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Does rising consumer debt signal future recessions?: Testing the causal relationship between consumer debt and the economy

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  • Elizabeth Schmitt

Abstract

This paper examines the relationship between measures of the consumer debt burden and various economic indicators. The consumer loan delinquency rate is useful in predicting consumer spending on durable goods and retail sales, while various economic indicators are useful in predicting the ratio of consumer installment credit to disposable income. The results provide no evidence for the hypothesis that a rising consumer debt burden signals any slowdown in the growth of consumer spending and the economy. Instead, the results indicate that rising consumer indebtedness is a normal occurrence in an economic expansion. It remains to be seen whether innovations in credit card usage, along with the growing use of substitutes for traditional consumer loans, will have an impact on the causal relationship between consumer debt and the economy. Copyright International Atlantic Economic Society 2000

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  • Elizabeth Schmitt, 2000. "Does rising consumer debt signal future recessions?: Testing the causal relationship between consumer debt and the economy," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(3), pages 333-345, September.
    • Handle: RePEc:kap:atlecj:v:28:y:2000:i:3:p:333-345
    DOI: 10.1007/BF02298325
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    Cited by:

    1. Ursel Baumann, 2014. "Has US Household Deleveraging Ended? A Model-Based Estimate of Equilibrium Debt," Working Papers w201404, Banco de Portugal, Economics and Research Department.
    2. Jin Zhang & David Bessler & David Leatham, 2006. "Does consumer debt cause economic recession? Evidence using directed acyclic graphs," Applied Economics Letters, Taylor & Francis Journals, vol. 13(7), pages 401-407.
    3. Andrew Kish, 2006. "Perspectives on recent trends in consumer debt," Consumer Finance Institute discussion papers 06-05, Federal Reserve Bank of Philadelphia.
    4. Isil Tellalbasi, 2014. "Financialization Of Household Sector In Turkey., 2000-2013," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(12), pages 1826-1839, December.
    5. Yun Kim, 2011. "A Short Empirical Note on Household Debt, Financialization, and Macroeconomic Performance," Working Papers 1107, Trinity College, Department of Economics.
    6. Albuquerque Bruno & Baumann Ursel & Krustev Georgi, 2015. "US household deleveraging following the Great Recession – a model-based estimate of equilibrium debt," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(1), pages 1-53, January.

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