Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/203426 
Year of Publication: 
2019
Series/Report no.: 
ADB Economics Working Paper Series No. 579
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
This paper empirically investigates the relationship between the speed of buildup of private debt (household and corporate) and the depth of recessions. To do this, we differentiate between financial recessions and normal recessions on the basis of how quickly their private debt builds up. In addition to output recessions, we look at consumption and investment recessions. We find that financial recessions are deeper than normal recessions in advanced economies−and the differences become even more pronounced when emerging market economies are added to the sample. Our evidence suggests that a buildup in corporate debt is especially damaging for emerging markets during financial recessions. A higher ratio of debt to gross domestic product−in other words, less fiscal space− exacerbates recessions only beyond a certain threshold level, suggesting a nonlinear effect. We find that the buildup of corporate debt−and not just household debt−can worsen recessions, especially in emerging market economies.
Subjects: 
business cycle
corporate debt
fiscal space
government debt
household debt
private debt
recessions
JEL: 
E32
E44
G01
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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