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US household deleveraging following the Great Recession - a model-based estimate of equilibrium debt

(2015) B E JOURNAL OF MACROECONOMICS. 15(1). p.255-307
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Organization
Abstract
The balance sheet adjustment in the household sector was a prominent feature of the Great Recession that is widely believed to have held back the cyclical recovery of the US economy. A key question for the US outlook is therefore whether household deleveraging has ended or whether further adjustment is needed. The novelty of this paper is to estimate a time-varying equilibrium household debt-to-income ratio determined by economic fundamentals to examine this question. The paper uses state-level data for household debt from the FRBNY Consumer Credit Panel over the period 1999Q1-2012Q4 and employs the Pooled Mean Group (PMG) estimator developed by Pesaran, Shin, and Smith (1999), adjusted for cross-section dependence. The results support the view that, despite significant progress in household balance sheet repair, household deleveraging still had some way to go as of 2012Q4, as the actual debt-to-income-ratio continued to exceed its estimated equilibrium. The baseline conclusions are rather robust to a set of alternative specifications. Going forward, our model suggests that part of this debt gap could, however, be closed by improving economic conditions rather than only by further declines in actual debt. Nevertheless, the normalisation of the monetary policy stance may imply challenges for the deleveraging process by reducing the level of sustainable household debt.
Keywords
equilibrium debt, HETEROGENEOUS PANELS, heterogeneous dynamic panels, household deleveraging, pooled mean group estimator

Citation

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MLA
Ferreira Albuquerque, Bruno, et al. “US Household Deleveraging Following the Great Recession - a Model-Based Estimate of Equilibrium Debt.” B E JOURNAL OF MACROECONOMICS, vol. 15, no. 1, 2015, pp. 255–307, doi:10.1515/bejm-2013-0190.
APA
Ferreira Albuquerque, B., Baumann, U., & Krustev, G. (2015). US household deleveraging following the Great Recession - a model-based estimate of equilibrium debt. B E JOURNAL OF MACROECONOMICS, 15(1), 255–307. https://doi.org/10.1515/bejm-2013-0190
Chicago author-date
Ferreira Albuquerque, Bruno, Ursel Baumann, and Georgi Krustev. 2015. “US Household Deleveraging Following the Great Recession - a Model-Based Estimate of Equilibrium Debt.” B E JOURNAL OF MACROECONOMICS 15 (1): 255–307. https://doi.org/10.1515/bejm-2013-0190.
Chicago author-date (all authors)
Ferreira Albuquerque, Bruno, Ursel Baumann, and Georgi Krustev. 2015. “US Household Deleveraging Following the Great Recession - a Model-Based Estimate of Equilibrium Debt.” B E JOURNAL OF MACROECONOMICS 15 (1): 255–307. doi:10.1515/bejm-2013-0190.
Vancouver
1.
Ferreira Albuquerque B, Baumann U, Krustev G. US household deleveraging following the Great Recession - a model-based estimate of equilibrium debt. B E JOURNAL OF MACROECONOMICS. 2015;15(1):255–307.
IEEE
[1]
B. Ferreira Albuquerque, U. Baumann, and G. Krustev, “US household deleveraging following the Great Recession - a model-based estimate of equilibrium debt,” B E JOURNAL OF MACROECONOMICS, vol. 15, no. 1, pp. 255–307, 2015.
@article{7254148,
  abstract     = {{The balance sheet adjustment in the household sector was a prominent feature of the Great Recession that is widely believed to have held back the cyclical recovery of the US economy. A key question for the US outlook is therefore whether household deleveraging has ended or whether further adjustment is needed. The novelty of this paper is to estimate a time-varying equilibrium household debt-to-income ratio determined by economic fundamentals to examine this question. The paper uses state-level data for household debt from the FRBNY Consumer Credit Panel over the period 1999Q1-2012Q4 and employs the Pooled Mean Group (PMG) estimator developed by Pesaran, Shin, and Smith (1999), adjusted for cross-section dependence. The results support the view that, despite significant progress in household balance sheet repair, household deleveraging still had some way to go as of 2012Q4, as the actual debt-to-income-ratio continued to exceed its estimated equilibrium. The baseline conclusions are rather robust to a set of alternative specifications. Going forward, our model suggests that part of this debt gap could, however, be closed by improving economic conditions rather than only by further declines in actual debt. Nevertheless, the normalisation of the monetary policy stance may imply challenges for the deleveraging process by reducing the level of sustainable household debt.}},
  author       = {{Ferreira Albuquerque, Bruno and Baumann, Ursel and Krustev, Georgi}},
  issn         = {{1935-1690}},
  journal      = {{B E JOURNAL OF MACROECONOMICS}},
  keywords     = {{equilibrium debt,HETEROGENEOUS PANELS,heterogeneous dynamic panels,household deleveraging,pooled mean group estimator}},
  language     = {{eng}},
  number       = {{1}},
  pages        = {{255--307}},
  title        = {{US household deleveraging following the Great Recession - a model-based estimate of equilibrium debt}},
  url          = {{http://doi.org/10.1515/bejm-2013-0190}},
  volume       = {{15}},
  year         = {{2015}},
}

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