Private Sector Deleveraging and Growth Following Busts

37 Pages Posted: 4 Mar 2015

See all articles by Sally Chen

Sally Chen

International Monetary Fund (IMF)

Minsuk Kim

International Monetary Fund (IMF)

Marijn Otte

International Monetary Fund (IMF)

Kevin Wiseman

International Monetary Fund (IMF)

Aleksandra Zdzienicka

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: February 27, 2015

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.

Keywords: deleveraging, leverage cycles, financial cycles, growth

JEL Classification: E21, E51, G01, G33, C23

Suggested Citation

Chen, Sally and Kim, Minsuk and Otte, Marijn and Wiseman, Kevin and Zdzienicka, Aleksandra, Private Sector Deleveraging and Growth Following Busts (February 27, 2015). Available at SSRN: https://ssrn.com/abstract=2572489 or http://dx.doi.org/10.2139/ssrn.2572489

Sally Chen (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Minsuk Kim

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Marijn Otte

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kevin Wiseman

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Aleksandra Zdzienicka

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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