Household Debt and Global Growth
Download Document| Date Published | 2015 |
| Version | |
| Primary Author | Atif Mian, Amir Sufi, and Emil Verner |
| Other Authors | |
| Theme | Housing and Wealth Creation |
| Country |
Abstract
A sustained increase in the household debt to GDP ratio over three to four years negatively forecasts output growth in a panel of mostly advanced economies. The increase is contemporaneously associated with a rise in the consumption share of output, a worsening of the current account balance, and a rise in the share of imported consumption goods. A rise in household debt forecasts external adjustment as net exports to GDP increase, and the increase in net exports is driven by sharp decline in imports. The external adjustment mechanism is stronger for more open economies. An increase in household debt forecasts more negative output growth in countries with a household debt cycle more correlated with the global household debt cycle. A rise in the global household debt to GDP ratio over three to four years negatively forecasts global growth, and the magnitude is large. For example, the estimated forecasting relationship using pre-2000 data can statistically “explain” the post-2007 slowdown in global growth given the large run-up in household debt during the 2000s.