IDEAS home Printed from https://ideas.repec.org/a/fip/l00101/103208.html

The Real Effects of Household Debt in the Short and Long Run

Author

Listed:
  • Marco Lombardi
  • Madhusudan Mohanty
  • Ilhyock Shim

Abstract

Household debt levels relative to GDP have risen rapidly in many countries over the past decade. We investigate the macroeconomic impact of household debt by employing a novel estimation technique proposed by Chudik et al (2016), which tackles the problem of endogeneity in traditional panel regressions. Using data for 54 economies over 1990‒2016, we show that household debt boosts GDP growth in the short run, mostly within one year. By contrast, a 1 percentage point increase in the household debt-to-GDP ratio tends to lower GDP growth in the long run by 0.1 percentage point. Moreover, the negative long-run effects on GDP growth intensifies as the household debt-to-GDP ratio exceeds 70%, suggesting that policy makers are likely to face non-trivial, real costs in stimulating the economy through credit expansion.

Suggested Citation

  • Marco Lombardi & Madhusudan Mohanty & Ilhyock Shim, 2017. "The Real Effects of Household Debt in the Short and Long Run," Community Development Publications and Reports, Federal Reserve Bank of St. Louis, pages 1-31, October.
    • Handle: RePEc:fip:l00101:103208
    Note: The St. Louis Fed Center for Household Financial Stability and the Private Debt Project hosted three "Tipping Points" Household Debt Research Symposia, 2016-2018. All three sessions were centered on the question of "tipping points" in regard to debt: How and when does household debt move from being wealth-building and productive for households and the economy to being wealth-depleting and destructive for both?; Conference Materials: https://fraser.stlouisfed.org/title/tipping-points-ii-mapping-understanding-impact-debt-economic-growth-9373/session-list-685749; Conference Executive Summary: https://fraser.stlouisfed.org/title/tipping-points-ii-mapping-understanding-impact-debt-economic-growth-9373/executive-summary-685748; Tipping Points Conference Series: https://fraser.stlouisfed.org/series/tipping-points-conference-series-9375
    as

    Download full text from publisher

    File URL: https://fraser.stlouisfed.org/title/tipping-points-ii-mapping-understanding-impact-debt-economic-growth-9373/real-effects-household-debt-short-long-run-685752
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:l00101:103208. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Scott St. Louis (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.