Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/141990
Authors: 
Albuquerque, Bruno
Krustev, Georgi
Year of Publication: 
2015
Series/Report no.: 
Bank of Canada Staff Working Paper 2015-47
Abstract: 
Using a novel dataset for the US states, this paper examines whether household debt and the protracted debt deleveraging help explain the dismal performance of US consumption since 2007, in the aftermath of the housing bubble. By separating the concepts of deleveraging and debt overhang - a flow and stock effect - we find that excessive indebtedness exerted a meaningful drag on consumption over and beyond income and wealth effects. The overall impact, however, is modest, around one-sixth of the slowdown in consumption between 2000-06 and between 2007-12 - and mostly driven by states with particularly large imbalances in the household sector. This might be indicative of non-linearities, whereby indebtedness begins to bite only when misalignments from sustainable debt dynamics become more excessive.
Subjects: 
Credit and credit aggregates
Econometric and statistical methods
International topics
JEL: 
C13
C23
C52
D12
H31
Document Type: 
Working Paper

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