Consumer Debt Dynamics: Follow the Increasers
Consumer debt played a central role in creating the U.S. housing bubble, the ensuing housing downturn, and the Great Recession, and it has been blamed as a factor in the weak subsequent recovery as well. This paper uses micro-level data to decompose consumer debt dynamics by separating the actions of consumer debt increasers and decreasers, and then further decomposing movements into percentage and size margins among the increasers and decreasers. We view such a decomposition as informative for macroeconomic models featuring a central role for consumer debt. Using this framework, we show that variations in borrowing activity among the increasers explain four times as much of the total variation in consumer debt as variations among the decreasers who are shedding debt, whether through paydowns or defaults. We also provide micro-level evidence of a sharp decline in the percentage of increasers during the financial crisis that is qualitatively consistent with a binding zero lower bound on nominal interest rates, and evidence of a cycle in the average size of debt changes among the increasers that is related to rising collateral values pre-crisis coupled with additional financial frictions after the crisis.
|Date of creation:||21 Mar 2014|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.clevelandfed.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Veronica Guerrieri & Guido Lorenzoni, 2011.
"Credit Crises, Precautionary Savings, and the Liquidity Trap,"
NBER Working Papers
17583, National Bureau of Economic Research, Inc.
- Guido Lorenzoni & Veronica Guerrieri, 2011. "Credit Crises, Precautionary Savings and the Liquidity Trap," 2011 Meeting Papers 1414, Society for Economic Dynamics.
- Stephen P. Zeldes, .
"Consumption and Liquidity Constraints: An Empirical Investigation,"
Rodney L. White Center for Financial Research Working Papers
16-88, Wharton School Rodney L. White Center for Financial Research.
- Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
- Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
- Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2013.
"Household Leveraging and Deleveraging,"
NBER Working Papers
18941, National Bureau of Economic Research, Inc.
- Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2013. "Household leveraging and deleveraging," Staff Reports 602, Federal Reserve Bank of New York.
- Justiniano, Alejandro & Primiceri, Giorgio E & Tambalotti, Andrea, 2013. "Household Leveraging and Deleveraging," CEPR Discussion Papers 9671, C.E.P.R. Discussion Papers.
- Jean Imbs & Giovanni Favara, 2011.
"Credit Supply and the Price of Housing,"
2011 Meeting Papers
1342, Society for Economic Dynamics.
- Robert E. Hall, 2011.
"The Long Slump,"
American Economic Review,
American Economic Association, vol. 101(2), pages 431-69, April.
- Kathleen W. Johnson & Geng Li, 2010. "The Debt-Payment-to-Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1373-1390, October.
- Edward S. Knotek II & John Carter Braxton, 2012. "What drives consumer debt dynamics?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV.
- 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.
- David B. Gross & Nicholas S. Souleles, 2001.
"Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data,"
NBER Working Papers
8314, National Bureau of Economic Research, Inc.
- David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February.
When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:1401. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lee Faulhaber)
If references are entirely missing, you can add them using this form.