Household finances, debt overhang and consumption patterns
This paper studies the effect of household debt on consumption throughout the business cycle. We use household-level data for Spain in a period, 2002-2017, characterized by significant fluctuations in leverage, consumption, and asset prices. We find that high levels of debt have a negative effect on...
| Autores: | , |
|---|---|
| Tipo de recurso: | artículo |
| Fecha de publicación: | 2024 |
| País: | España |
| Institución: | Universitat Autònoma de Barcelona |
| Repositorio: | Dipòsit Digital de Documents de la UAB |
| Idioma: | inglés |
| OAI Identifier: | oai:ddd.uab.cat:302362 |
| Acceso en línea: | https://ddd.uab.cat/record/302362 https://dx.doi.org/urn:doi:10.1016/j.econmod.2024.106836 |
| Access Level: | acceso abierto |
| Palabra clave: | Consumption Household debt Debt overhang Spending normalization Survey |
| Sumario: | This paper studies the effect of household debt on consumption throughout the business cycle. We use household-level data for Spain in a period, 2002-2017, characterized by significant fluctuations in leverage, consumption, and asset prices. We find that high levels of debt have a negative effect on consumption during recession periods, while previous debt accumulation does not significantly influence consumption. When considering heterogeneities across types of debt, we observe that households adjust their spending faster in response to debt not associated with real estate assets. By exploiting explicit information on household credit constraints, we find no evidence suggesting that they play a significant role in shaping the debt-consumption nexus. We conclude that in a situation of high leverage and financial stress, debt overhang decreases household consumption. In this context, policies aimed at preventing households from leveraging excessively during expansions, and policies providing debt relief during recessions, can help mitigate consumption shocks. |
|---|