Household Leverage and the Recession of 2007 to 2009
AbstractWe show that household leverage as of 2006 is a powerful statistical predictor of the severity of the 2007 to 2009 recession across U.S. counties. Counties in the U.S. that experienced a large increase in household leverage from 2002 to 2006 showed a sharp relative decline in durable consumption starting in the third quarter of 2006 – a full year before the official beginning of the recession in the fourth quarter of 2007. Similarly, counties with the highest reliance on credit card borrowing reduced durable consumption by significantly more following the financial crisis of the fall of 2008. Overall, our statistical model shows that household leverage growth and dependence on credit card borrowing as of 2006 explain a large fraction of the overall consumer default, house price, unemployment, residential investment, and durable consumption patterns during the recession. Our findings suggest that a focus on household finance may help elucidate the sources macroeconomic fluctuations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15896.
Date of creation: Apr 2010
Date of revision:
Publication status: published as Household Leverage And The Recession Of 2007 To 2009 (with Amir Sufi) IMF Economic Review, May 2010 (inaugural issue).
Note: CF EFG IFM ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- G01 - Financial Economics - - General - - - Financial Crises
- R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-MAC-2010-04-17 (Macroeconomics)
- NEP-URE-2010-04-17 (Urban & Real Estate Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.