Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212383
Authors: 
Drehmann, Mathias
Juselius, Mikael
Korinek, Anton
Year of Publication: 
2017
Series/Report no.: 
Bank of Finland Research Discussion Papers 12/2017
Abstract: 
When taking on new debt, borrowers commit to a pre-specified path of future debt service. This implies a predictable lag between credit booms and peaks in debt service which, in a panel of household debt in 17 countries, is four years on average. The lag is driven by two key features of the data: (i) new borrowing is strongly auto-correlated and (ii) debt contracts are long term. The delayed increase in debt service following an impulse to new borrowing largely explains why credit booms are associated with lower future output growth and higher probability of crisis. This provides a systematic transmission channel whereby credit expansions can have adverse long-lasting real effects.
JEL: 
E17
E44
G01
D14
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-169-6
Document Type: 
Working Paper

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