The Microdynamics of Household Credit Use through a Boom-Bust Cycle
Office of the Comptroller of the Currency (OCC)
Government of the United States of America - Office of the Comptroller of the Currency (OCC)
October 9, 2014
In this paper we provide what we believe to be the first evidence on the nature of gross debt flows across consumers. We find that the aggregate dynamics in the consumer debt market are largely explained by the behavior of consumers with mortgage debt, and the behavior of such consumers is found to be sensitive to changes in housing market conditions. Our results show that there is a significant amount of consumer-level heterogeneity as evidenced by large amounts of simultaneous debt creation and debt destruction throughout the economic cycle. Finally, we find that there are important asymmetries in the debt adjustment process: whereas consumers are able to take on large amounts of additional debt quickly, short of defaulting debt is discharged very slowly. This slow deleveraging process may help explain why total consumer debt levels have been so slow to recover in the years following the Great Recession.
Number of Pages in PDF File: 35
Keywords: Gross Credit Flows, Deleveraging, Finanical Crisis, Consumer Credit
JEL Classification: D14, E51, G01
Date posted: May 14, 2014 ; Last revised: October 10, 2014
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