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Debt and Macroeconomic Stability: Case studies

Listed author(s):
  • Rossana Merola


Accumulating debt raises concerns about its implications for macroeconomic stability. This paper sheds light on the implications of high indebtedness for the macroeconomic volatility by identifying the main drivers of the evolution of debt in a set of countries. The country choice was based on large deleveraging episodes of total economy debt, identified by turning point dating. The analysis shows that GDP is more volatile in the phase of deleveraging. However, countries can be distinguished into two groups. In a first set of countries (Germany, Israel, Mexico and the United States) economic activity has often rebounded during the phase of deleveraging. On the contrary, in a second group of countries, the higher volatility during the deleveraging phase has been accompanied by sluggish economic activity. Countries in this second group (for instance, Japan and Sweden) share the common characteristic that higher indebtedness was driven by a boom in asset prices. When asset prices burst, the financial sector cuts credit supply, which weighs on economic activity. The results also suggest that many episodes of debt leveraging have been naturally driven by boom in asset price used as collateral or by financial liberalisation, which have facilitated excessive borrowing. Endettement et stabilité économique: Études de cas L’accumulation de dettes amène à se préoccuper des répercussions de ce phénomène sur la stabilité économique. Ce document met en lumière les conséquences d’un niveau élevé d’endettement du point de vue de l’instabilité macroéconomique en identifiant les principaux déterminants de l’évolution de la dette dans un certain nombre de pays. Les pays choisis ont connu de longues périodes de désendettement, identifiées par la datation du point de retournement. L’analyse montre que les PIB est plus variable au cours de la phase de désendettement. On distingue toutefois deux groupes de pays. Dans un premier groupe (Allemagne, Israël, Mexique et États-Unis), l’activité économique a souvent rebondi durant la phase de désendettement. Dans un second groupe, au contraire, la plus forte instabilité caractérisant la phase de désendettement s’est accompagnée d’une atonie de l’activité économique. Les pays du second groupe (Japon et Suède, par exemple) ont en commun le fait que leur niveau plus élevé d’endettement a été imputable à une explosion des prix des actifs. Lorsque les prix des actifs flambent, le secteur financier réduit l’offre de crédit, ce qui pèse sur l’activité économique. Les résultats semblent indiquer aussi que, dans bien des cas, les épisodes de désendettement ont fait suite naturellement à une poussée des prix des actifs utilisés comme nantissement ou à une libéralisation financière, qui a facilité un recours excessif à l’emprunt.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1004.

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Date of creation: 07 Dec 2012
Handle: RePEc:oec:ecoaaa:1004-en
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