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Consumption-led expansions

Author

Listed:
  • Enisse Kharroubi
  • Emanuel Kohlscheen

Abstract

GDP growth has increasingly been led by consumption. However, consumption-led expansions tend to be significantly weaker than when growth is driven by other components of aggregate demand, often because of the build-up of imbalances. We show that while factors such as credit growth and rising house prices can boost consumption in the short run, the incidence of consumption-led growth and rising debt service ratios significantly dampen growth in the medium to long run. Policies that address the build-up of imbalances and strengthen investment are therefore central to fostering durable growth.

Suggested Citation

  • Enisse Kharroubi & Emanuel Kohlscheen, 2017. "Consumption-led expansions," BIS Quarterly Review, Bank for International Settlements, March.
  • Handle: RePEc:bis:bisqtr:1703e
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    References listed on IDEAS

    as
    1. Michela Scatigna & Robert Szemere & Kostas Tsatsaronis, 2014. "Residential property price statistics across the globe," BIS Quarterly Review, Bank for International Settlements, September.
    2. Mikael Juselius & Claudio Borio & Piti Disyatat & Mathias Drehmann, 2016. "Monetary policy, the financial cycle and ultra-low interest rates," BIS Working Papers 569, Bank for International Settlements.
    3. Mikael Juselius & Claudio Borio & Piti Disyatat & Mathias Drehmann, 2017. "Monetary Policy, the Financial Cycle, and Ultra-Low Interest Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 13(3), pages 55-89, September.
    4. Janine Aron & John V. Duca & John Muellbauer & Keiko Murata & Anthony Murphy, 2012. "Credit, Housing Collateral, And Consumption: Evidence From Japan, The U.K., And The U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(3), pages 397-423, September.
    5. Kostas Tsatsaronis & Haibin Zhu, 2004. "What drives housing price dynamics: cross-country evidence," BIS Quarterly Review, Bank for International Settlements, March.
    6. John Muellbauer, 2016. "Macroeconomics and Consumption," Economics Series Working Papers Paper 811, University of Oxford, Department of Economics.
    7. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, pages 591-621.
    8. Mathias Drehmann & Mikael Juselius, 2012. "Do debt service costs affect macroeconomic and financial stability?," BIS Quarterly Review, Bank for International Settlements, September.
    9. John Muellbauer, 2016. "Macroeconomics and Consumption," Economics Series Working Papers Paper 811, University of Oxford, Department of Economics.
    10. Marco Jacopo Lombardi & Madhusudan Mohanty & Ilhyock Shim, 2017. "The real effects of household debt in the short and long run," BIS Working Papers 607, Bank for International Settlements.
    11. Martin Schneider & Karin Wagner, 2015. "Housing Markets in Austria, Germany and Switzerland," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 42-58.
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    Citations

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    Cited by:

    1. Claudio Borio & Boris Hofmann, 2017. "Is monetary policy less effective when interest rates are persistently low?," BIS Working Papers 628, Bank for International Settlements.
    2. repec:rba:rbaacv:acv2017-04 is not listed on IDEAS

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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