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Debts on debts


  • Faria, João Ricardo
  • Wang, Le
  • Wu, Zhongmin


This paper studies the impact of mortgages on consumer debt and on debt on durable goods. Outstanding debt, representing mortgages, affects positively consumer debt, and the debt on durable goods. This hypothesis is empirically tested for the U.S. using PSID 2005 wave. Our results are striking. First, we find strong evidence supporting a positive association between mortgage loans and consumer debts, regardless of the measures used, the control variables used, and the methods used. The results remain unchanged when we address potential endogeneity and measurement error problems. Second, we find that the effects of mortgages on the debt on durable goods are in general smaller than the effects of mortgages on other types of debts. Third, our distributional analysis reveals an interesting pattern of the effects on consumer debt of mortgage over the distribution. Specifically, the effects monotonically decrease as the quantile increase, with the smallest effects being at the upper tail of the distribution. Finally, we also examine the short-run dynamics of the relation between mortgage and consumer debts. We find that there is no systematic relation between the growth rate of mortgage and the growth rates of consumer debts.

Suggested Citation

  • Faria, João Ricardo & Wang, Le & Wu, Zhongmin, 2012. "Debts on debts," The North American Journal of Economics and Finance, Elsevier, vol. 23(2), pages 203-219.
  • Handle: RePEc:eee:ecofin:v:23:y:2012:i:2:p:203-219
    DOI: 10.1016/j.najef.2012.02.003

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    • Joao Ricardo Faria & Le Wang & Zhongmin Wu, 2009. "Debts on debts," Working Papers 2009/7, Nottingham Trent University, Nottingham Business School, Economics Division.

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    Cited by:

    1. Saha, Sarani & Roy, Poulomi & Kar, Saibal, 2014. "Public and private sector jobs, unreported income and consumption gap in India: Evidence from micro-data," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 285-300.
    2. Kuo, Chii-Shyan & Yu, Shih-Ti, 2013. "The non-uniform pricing effect of employee stock options using quantile regression," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 400-415.

    More about this item


    Consumer expenditure; Housing; Credit; Censored regressions; Instrument variable estimation; Heteroskedasticity;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets


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