On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Consumer Debt Dynamics: Follow the Increasers
John Carter Braxton
Edward S. Knotek
Abstract

Consumer debt played a central role in creating the U.S. housing bubble, the ensuing housing downturn, and the Great Recession, and it has been blamed as a factor in the weak subsequent recovery as well. This paper uses micro-level data to decompose consumer debt dynamics by separating the actions of consumer debt increasers and decreasers, and then further decomposing movements into percentage and size margins among the increasers and decreasers. We view such a decomposition as informative for macroeconomic models featuring a central role for consumer debt. Using this framework, we show that variations in borrowing activity among the increasers explain four times as much of the total variation in consumer debt as variations among the decreasers who are shedding debt, whether through paydowns or defaults. We also provide micro-level evidence of a sharp decline in the percentage of increasers during the financial crisis that is qualitatively consistent with a binding zero lower bound on nominal interest rates, and evidence of a cycle in the average size of debt changes among the increasers that is related to rising collateral values pre-crisis coupled with additional financial frictions after the crisis.


Download Full text
Cite this item
John Carter Braxton & Edward S. Knotek, Consumer Debt Dynamics: Follow the Increasers, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1401, 21 Mar 2014.
More from this series
JEL Classification:
Subject headings:
Keywords: consumer debt; deleveraging; zero lower bound; increasers; decreasers
For corrections, contact 4D Library ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal