Abstract

https://ssrn.com/abstract=2655804
 


 



Household Debt and Business Cycles Worldwide


Atif R. Mian


Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi


University of Chicago - Booth School of Business; NBER

Emil Verner


Princeton University - Department of Economics

October 12, 2016

Fama-Miller Working Paper
Chicago Booth Research Paper
Kreisman Working Papers Series in Housing Law and Policy No. 38

Abstract:     
An increase in the household debt to GDP ratio predicts lower subsequent GDP growth and higher unemployment in an unbalanced panel of 30 countries from 1960 to 2012. Low mortgage spreads are associated with an increase in the household debt to GDP ratio and a decline in subsequent GDP growth, highlighting the importance of credit supply shocks. Economic forecasters systematically over-predict GDP growth at the end of household debt booms, suggesting an important role of flawed expectations formation. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries with less flexible exchange rate regimes and those closer to the zero lower bound on nominal interest rates. We also uncover a global household debt cycle that partly predicts the severity of the global growth slowdown after 2007. Countries with a household debt cycle more correlated with the global household debt cycle experience a sharper decline in growth after an increase in domestic household debt.

Number of Pages in PDF File: 63

Keywords: debt, business cycle, crises, household debt, GDP forecast

JEL Classification: D12, E2, E3, G2


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Date posted: September 5, 2015 ; Last revised: October 13, 2016

Suggested Citation

Mian, Atif R. and Sufi, Amir and Verner, Emil, Household Debt and Business Cycles Worldwide (October 12, 2016). Fama-Miller Working Paper; Chicago Booth Research Paper; Kreisman Working Papers Series in Housing Law and Policy No. 38. Available at SSRN: https://ssrn.com/abstract=2655804 or http://dx.doi.org/10.2139/ssrn.2655804

Contact Information

Atif R. Mian (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
Princeton University
Princeton, NJ 08544-1021
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Amir Sufi
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Emil Verner
Princeton University - Department of Economics ( email )
Princeton, NJ
United States
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