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The Real Effects of Household Debt in the Short and Long Run
Household debt levels relative to GDP have risen rapidly in many countries over the past decade. We investigate the macroeconomic impact of household debt by employing a novel estimation technique proposed by Chudik et al (2016), which tackles the problem of endogeneity in traditional panel regressions. Using data for 54 economies over 1990‒2016, we show that household debt boosts GDP growth in the short run, mostly within one year. By contrast, a 1 percentage point increase in the household debt-to-GDP ratio tends to lower GDP growth in the long run by 0.1 percentage point. Moreover, the ...