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Household Leverage and the Recession
by Callum Jones, Virgiliu Midrigan, and Thomas Philippon

Series:Working Paper No. 18/194
ISBN 9781484373866
Code: #WPIEA2018194

Publication year: 2018

Cdn: $27.00; US: $23.50
Paperback
Language: English
51 pages
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We evaluate and partially challenge the ‘household leverage’ view of the Great Recession. In the data, employment and consumption declined more in states where household debt declined more. We study a model where liquidity constraints amplify the response of consumption and employment to changes in debt. We estimate the model with Bayesian methods combining state and aggregate data. Changes in household credit limits explain 40 percent of the differential rise and fall of employment across states, but a small fraction of the aggregate employment decline in 2008-2010. Nevertheless, since household deleveraging was gradual, credit shocks greatly slowed the recovery.
Household Leverage and the Recession
Cdn: $27.00; US: $23.50
International Monetary Fund (IMF) BookID: 123540 Added: 2018.9.11