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The microdynamics of household credit use through a boom–bust cycle

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  • Andersson, Fredrik
  • Mayock, Tom

Abstract

In this paper we provide what we believe to be the first evidence on the nature of gross debt flows across consumers. We find that the aggregate dynamics in the consumer debt market are largely explained by the behavior of consumers with mortgage debt, and the behavior of such consumers is found to be sensitive to changes in housing market conditions. Our results show that there is a significant amount of consumer-level heterogeneity as evidenced by large amounts of simultaneous debt creation and debt destruction throughout the economic cycle. Finally, we find that there are important asymmetries in the debt adjustment process: whereas consumers are able to take on large amounts of additional debt quickly, short of defaulting debt is discharged very slowly. This slow deleveraging process may help explain why total consumer debt levels have been so slow to recover in the years following the Great Recession.

Suggested Citation

  • Andersson, Fredrik & Mayock, Tom, 2015. "The microdynamics of household credit use through a boom–bust cycle," Journal of Housing Economics, Elsevier, vol. 27(C), pages 22-36.
  • Handle: RePEc:eee:jhouse:v:27:y:2015:i:c:p:22-36
    DOI: 10.1016/j.jhe.2015.02.004
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    References listed on IDEAS

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    1. Herrera, Ana Maria & Kolar, Marek & Minetti, Raoul, 2011. "Credit reallocation," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 551-563.
    2. Robert E. Hall, 2011. "The Long Slump," American Economic Review, American Economic Association, vol. 101(2), pages 431-469, April.
    3. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
    4. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    5. Ben R. Craig & Joseph G. Haubrich, 2013. "Gross Loan Flows," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 401-421, March.
    6. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1687-1726.
    7. Robert B. Avery & Glenn B. Canner & Paul S. Calem, 2003. "An overview of consumer data and credit reporting," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue feb, pages 47-73.
    8. Giovanni Dell'Ariccia & Pietro Garibaldi, 2005. "Gross Credit Flows," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 665-685.
    9. Atif R. Mian & Amir Sufi, 2012. "What explains high unemployment? The aggregate demand channel," NBER Working Papers 17830, National Bureau of Economic Research, Inc.
    10. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 127(3), pages 1469-1513.
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    More about this item

    Keywords

    Gross credit flows; Deleveraging; Financial crisis; Consumer credit; D14; E51; G01;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G01 - Financial Economics - - General - - - Financial Crises

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