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Debts on debts

Listed author(s):
  • Joao Ricardo Faria
  • Le Wang
  • Zhongmin Wu

This paper studies the impact of mortgages on consumer debt and on debt on durable goods. We first present a stylized model in which an outstanding debt, representing mortgages, affects positively consumer debt, and debt on durable goods. The model is empirically tested for the U.S. using PSID 2005 wave. Our results are striking. First, we find strong evidence supporting a positive association between mortgage loans and consumer debts, regardless of the measures used, the control variables used, and the methods used. Second, we find that the effects of mortgages on the debt on durable goods are in general smaller than the effects of mortgages on consumer debt. Third, our distributional analysis reveals that the effects monotonically decrease as the quantile increases. Finally, our results are also confirmed by the results using the U.K. data.

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File URL: http://www.ntu.ac.uk/research/document_uploads/92842.pdf
File Function: First version, 2009
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Paper provided by Nottingham Trent University, Nottingham Business School, Economics Division in its series Working Papers with number 2009/7.

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Date of creation: Dec 2009
Handle: RePEc:nbs:wpaper:2009/7
Contact details of provider: Web page: http://www.ntu.ac.uk/nbs

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