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Private Sector Deleveraging and Growth Following Busts

Author

Listed:
  • Sally Chen
  • Minsuk Kim
  • Marijn Otte
  • Kevin Wiseman
  • Aleksandra Zdzienicka

Abstract

Balance sheet recessions have been a drag on activity after the Global Financial Crisis, underscoring the important role of balance sheet adjustment for resuming sustained growth. In this paper we examine private sector deleveraging experiences across 36 advanced and emerging economies countries since 1960. We consider the common features and divergent experiences of deleveraging episodes across countries, and analyze empirically the impact of different aspects of deleveraging during the bust phase of leverage cycles on subsequent medium-term growth. The results suggest that larger and quicker unwinding of non-financial sector debt overhangs is associated with sizable medium-term output gains, and that policies should focus on facilitating up-front balance sheet adjustment.

Suggested Citation

  • Sally Chen & Minsuk Kim & Marijn Otte & Kevin Wiseman & Aleksandra Zdzienicka, 2015. "Private Sector Deleveraging and Growth Following Busts," IMF Working Papers 15/35, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:15/35
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    References listed on IDEAS

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    1. Morten L. Bech & Leonardo Gambacorta & Enisse Kharroubi, 2014. "Monetary Policy in a Downturn: Are Financial Crises Special?," International Finance, Wiley Blackwell, vol. 17(1), pages 99-119, March.
    2. Òscar Jordà & Moritz Schularick & Alan M Taylor, 2011. "Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(2), pages 340-378, June.
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    Cited by:

    1. Arun Jaitley, 2018. "Economic Survey 2017: Volume I, Chapter 3: Investment and Saving Slowdowns and Recoveries: Cross-Country Insights for India," Working Papers id:12442, eSocialSciences.
    2. Sebastian Ion Ceptureanu, 2015. "Young Smes Insolvency.Theoretical Considerations And Policy Actions," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 120-126.
    3. Storz, Manuela & Koetter, Michael & Setzer, Ralph & Westphal, Andreas, 2017. "Do we want these two to tango? On zombie firms and stressed banks in Europe," IWH Discussion Papers 13/2017, Halle Institute for Economic Research (IWH).
    4. Piotr Cizkowicz & Andrzej Rzonca & Andrzej Toroj, 2015. "In search for appropriate lower bound.Zero lower bound vs. positive lower bound under discretion and commitment," NBP Working Papers 215, Narodowy Bank Polski, Economic Research Department.

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