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What drives consumer debt dynamics?

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  • John Carter Braxton
  • Edward S. Knotek

Abstract

Consumers generally have been reducing their debt levels in the wake of the housing bust, and many policymakers and economists have pointed to this deleveraging as an important drag on the recovery from the recession. ; A key driving factor has been the sharp decline in the number of consumers taking on additional debt. With fewer borrowers taking advantage of low interest rates to take on debt and expand spending, accommodative monetary policy is less effective than in normal times. ; But Knotek and Braxton find that a modest rebound is now under way in the number of consumers increasing their debt. The trend is evident across geographic regions, including areas that experienced strong debt growth during the housing bubble, suggesting that debt overhang may be playing only a limited role in the consumer debt dynamics of the recovery.

Suggested Citation

  • John Carter Braxton & Edward S. Knotek, 2012. "What drives consumer debt dynamics?," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q IV).
    • Handle: RePEc:fip:fedker:y:2012:i:qiv:n:v.97no.4:x:1
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    File URL: https://www.kansascityfed.org/documents/934/2012-What%20Drives%20Consumer%20Debt%20Dynamics%3F.pdf
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    References listed on IDEAS

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    1. Robert E. Hall, 2011. "The Long Slump," American Economic Review, American Economic Association, vol. 101(2), pages 431-469, April.
    2. Donghoon Lee & Wilbert Van der Klaauw, 2010. "An introduction to the FRBNY Consumer Credit Panel," Staff Reports 479, Federal Reserve Bank of New York.
    3. Gauti B. Eggertsson & Paul Krugman, 2012. "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1469-1513.
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    Cited by:

    1. Daniel H. Cooper, 2013. "Changes in U.S. household balance sheet behavior after the housing bust and Great Recession: evidence from panel data," Public Policy Discussion Paper 13-6, Federal Reserve Bank of Boston.
    2. Troy Davig & William Xu, 2016. "Tracking Consumer Credit Trends," Macro Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, August.
    3. John Carter Braxton & Edward S. Knotek, 2014. "Consumer debt dynamics:follow the increasers," Research Working Paper RWP 14-2, Federal Reserve Bank of Kansas City.
    4. Bhutta, Neil, 2015. "The ins and outs of mortgage debt during the housing boom and bust," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 284-298.

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