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Household Debt and Economic Recovery Evidence from the U.S. Great Depression

Author

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  • Katharina Gärtner

    (Free University Berlin)

Abstract

The Great Recession has focused renewed attention on the role of household leverage in the business cycle. Household debt overhang and the ensuing process of deleveraging are often cited as factors holding back economic recovery. This paper studies the relationship between household debt and economic performance during the Great Depression in the U.S. on the state level. Using a newly compiled dataset, I present evidence that debt overhang in the household sector acted as a severe drag on economic recovery in the 1930s. States with higher initial debt-to-income ratios recovered considerably slower. These findings point toward a close link between the accumulation of debt and the severity and duration of recessions.

Suggested Citation

  • Katharina Gärtner, 2013. "Household Debt and Economic Recovery Evidence from the U.S. Great Depression," Working Papers 0036, European Historical Economics Society (EHES).
    • Handle: RePEc:hes:wpaper:0036
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    File URL: https://ehes.org/wp/EHES_No36.pdf
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    References listed on IDEAS

    as
    1. Fishback, Price V. & Horrace, William C. & Kantor, Shawn, 2005. "Did New Deal Grant Programs Stimulate Local Economies? A Study of Federal Grants and Retail Sales During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 65(1), pages 36-71, March.
    2. Bordo, Michael D. & Haubrich, Joseph G., 2010. "Credit crises, money and contractions: An historical view," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 1-18, January.
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    Cited by:

    1. Barry Eichengreen, 2016. "The Great Depression in a Modern Mirror," De Economist, Springer, vol. 164(1), pages 1-17, March.

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    More about this item

    Keywords

    Great Depression; household debt; mortgage finance; U.S.;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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