A Short Empirical Note on Household Debt, Financialization, and Macroeconomic Performance
We empirically examine the relationship between U.S. output and household debt. To account for structural change due to financial liberalization, we divide the sample at the fourth quarter of 1982. We find structural differences between earlier and later business cycles for the U.S. household sector and its relation to the macroeconomy. In the regression analysis for pre-1982, we find no evidence that the household debt variables had any negative effect on output. However, we find some evidence that the household debt variables have negative effects on output for the post-1982 period. A formal structural break test provides evidence of a structural change in the relationship of U.S. output to household debt. Unit root tests for the separate samples show that none of the household variables possesses a unit root in the earlier period, yet all of them do in the later period, indicating fundamental differences between earlier and later periods in terms of the data generating process.
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- Thomas I. Palley, 1994. "Debt, Aggregate Demand, and the Business Cycle: An Analysis in the Spirit of Kaldor and Minsky," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(3), pages 371-390, April.
- Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-32, October.
- Thomas I. Palley, 2007.
"Financialization: What It Is and Why It Matters,"
wp153, Political Economy Research Institute, University of Massachusetts at Amherst.
- Thomas I. Palley, 2008. "Financialization: What it is and Why it Matters," IMK Working Paper 04-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- Thomas I. Palley, 2007. "Financialization: What It Is and Why It Matters," Economics Working Paper Archive wp_525, Levy Economics Institute.
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