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Deleveraging in a Highly Indebted Property Market: Who does it and are there Implications for Household Consumption?

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  • Yvonne McCarthy
  • Kieran McQuinn

Abstract

A distinguishing feature of the period preceding the 2007/08 financial crisis was the sizeable increase in private sector debt observed across many countries. A key component of household liabilities is mortgage debt and with many countries experiencing persistent increases in house prices from the mid-1990s onwards, a marked increase in this aspect of household leverage was observed. While aggregate statistics across countries confirm reductions in personal debt levels in recent years, relatively few sources of micro data are available to examine the nature of the deleveraging process at the household level. In this paper, using a unique combination of regulatory and survey data, we examine deleveraging amongst a representative sample of mortgaged Irish households. In particular, we examine the characteristics of households presently reducing their debt levels and empirically assess whether the subsequent balance sheet adjustments have implications for key economic decisions. Our analysis suggests that, typically, it is those households who can deleverage, who do, and furthermore the decision to deleverage has negative implications for household consumption.
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Suggested Citation

  • Yvonne McCarthy & Kieran McQuinn, 2017. "Deleveraging in a Highly Indebted Property Market: Who does it and are there Implications for Household Consumption?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(1), pages 95-117, March.
  • Handle: RePEc:bla:revinw:v:63:y:2017:i:1:p:95-117
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    File URL: http://hdl.handle.net/10.1111/roiw.12208
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    Citations

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    Cited by:

    1. Timoney, Kevin, 2014. "A Survey-based Analysis of Irish Savings Behaviour by Age," Research Notes RN2014/1/1, Economic and Social Research Institute (ESRI).
    2. Duffy, David & FitzGerald, John & Timoney, Kevin & Byrne, David, 2014. "Quarterly Economic Commentary, Spring 2014," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20141.
    3. McCann, Fergal & McIndoe-Calder, Tara, 2014. "Property debt overhang: the case of Irish SMEs," Research Technical Papers 14/RT/14, Central Bank of Ireland.
    4. McQuinn, Kieran, 2014. "Bubble, Bubble Toil and Trouble? An Assessment of the Current State of the Irish Housing Market," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    5. Konstantina Manou & Panagiotis Palaios & Evangelia Papapetrou, 2019. "Housing wealth, household debt and financial assets: are there implications for consumption?," Working Papers 263, Bank of Greece.
    6. Rodriguez-Palenzuela, Diego & Dées, Stéphane & Andersson, Malin & Bijsterbosch, Martin & Forster, Katrin & Zorell, Nico & Audoly, Richard & Buelens, Christian & Compeyron, Guillaume & Ferrando, Annali, 2016. "Savings and investment behaviour in the euro area," Occasional Paper Series 167, European Central Bank.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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