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Indebtedness, Deleveraging Dynamics and Macroeconomic Adjustment

Author

Listed:
  • Carlos Cuerpo
  • Inês Drumond
  • Julia Lendvai
  • Peter Pontuch
  • Rafal Raciborski

Abstract

The current crisis revealed the unsustainability of private sector indebtedness levels, fuelled, in the recent past, by a prolonged period of rapid credit expansion in some EU Member States. The deleveraging process that is now taking place, although necessary, stands as a source of concern in terms of its implications for economic activity. Against this background, this paper aims to (i) identify the EU Member States that are currently facing deleveraging pressures in the non-financial private sector, making use of the informational content of various indebtedness indicators; (ii) assess quantitatively those pressures, using both a threshold approach, which compares the current level of households and non-financial corporations' debt with a static benchmark, and a stationarity approach, which goes a step further by taking into account valuation effects and the possibility of a time-varying "sustainable" level of indebtedness; (iii) refine the link between the identified deleveraging pressures and the actual adjustment of indebtedness through an analysis of the credit supply and demand conditions in each Member State; (iv) simulate the impact of a households' sector deleveraging shock using a dynamic stochastic general equilibrium model and assess the transmission mechanism through which such a shock influences the economic activity. Some policy implications are also discussed in the concluding section.

Suggested Citation

  • Carlos Cuerpo & Inês Drumond & Julia Lendvai & Peter Pontuch & Rafal Raciborski, 2013. "Indebtedness, Deleveraging Dynamics and Macroeconomic Adjustment," European Economy - Economic Papers 2008 - 2015 477, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0477
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    Citations

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    Cited by:

    1. Ashley Dunstan & Hayden Skilling, 2015. "Commercial property and financial stability," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 78, pages 1-10, March.
    2. Gebauer, Stefan & Setzer, Ralph & Westphal, Andreas, 2017. "Corporate debt and investment: a firm level analysis for stressed euro area countries," Working Paper Series 2101, European Central Bank.
    3. Albuquerque Bruno & Baumann Ursel & Krustev Georgi, 2015. "US household deleveraging following the Great Recession – a model-based estimate of equilibrium debt," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(1), pages 1-53, January.
    4. A. Bruggeman & Ch. Van Nieuwenhuyze, 2013. "Size and dynamics of debt positions in Belgium and in the euro area," Economic Review, National Bank of Belgium, issue i, pages 57-77, June.
    5. Oblath, Gábor & Halpern, László, 2014. "A gazdasági stagnálás "színe" és fonákja. Mivel jár együtt az exporttöbblet és az adósságcsökkenés?
      [The bright" and gloomy side of economic stagnation]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 757-800.
    6. Cuerpo, Carlos & Drumond, Inês & Lendvai, Julia & Pontuch, Peter & Raciborski, Rafal, 2015. "Private sector deleveraging in Europe," Economic Modelling, Elsevier, vol. 44(C), pages 372-383.
    7. Bruno Albuquerque & Ursel Baumann & Georgi Krustev, 2014. "Has US Household Deleveraging Ended? A Model-Based Estimate of Equilibrium Debt," Working Papers w201404, Banco de Portugal, Economics and Research Department.
    8. Vidakovic, Neven & Zbašnik, Dušan, 2014. "Capital Flows, Credit Crunch and Deleveraging Dynamics: The Case of Slovenia, Croatia and Hungary in Comparison," MPRA Paper 63959, University Library of Munich, Germany.

    More about this item

    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
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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