Search Results
Report
Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016
This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level data set that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, ...
Discussion Paper
Who Pays What First? Debt Prioritization during the COVID Pandemic
Since the depths of the Great Recession, household debt has increased from a low of $11 trillion in 2013 to more than $14 trillion in 2020 (see the New York Fed Household Debt and Credit Report). In this post, we examine how consumers’ repayment priorities have evolved over that time. Specifically, we seek to answer the following question: When consumers repay some but not all of their loans, which types do they choose to keep paying and which do they fall behind on?
Working Paper
The Relationship between Debt and Output
In this paper we empirically explore the relationship between debt and output in a panel of 72 countries over the period 1970–2014 using a vector autoregression (VAR). We document two puzzling empirical findings that contrast with what is predicted by a standard small open economy model by Aguiar and Gopinath (2007), where debt and output endogenously respond to total factor productivity (TFP) shocks. First, developing countries’ debt falls after a positive output shock, while the model predicts a debt expansion. Second, output declines in developed and developing countries after a debt ...
Working Paper
Asset Pledgeability and Endogenously Leveraged Bubbles
We develop a simple model of defaultable debt and rational bubbles in the price of an asset, which can be pledged as collateral in a competitive credit pool. When the asset pledgeability is low, the down payment is high, and bubble investment is unleveraged, as in a standard rational bubble model. When the pledgeability is high, the down payment is low, making it easier for leveraged borrowers to invest in the bubbly asset. As loans are packaged together into a competitive pool, the pricing of individual default risk may facilitate risk-taking. In equilibrium, credit-constrained borrowers may ...
Discussion Paper
Just Released: A Look at Borrowing, Repayment, and Bankruptcy Rates by Age
Household debt balances increased in the third quarter of 2018, a seventeenth consecutive increase. Total debt balances reached $13.51 trillion, a level more than 20 percent above the trough reached in 2013, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. With today’s report we begin publishing a new set of charts that depict debt and repayment outcomes by the age of the borrower. The report and this analysis are based on the New York Fed Consumer Credit Panel (CCP), a 5 percent sample of anonymized Equifax ...
Report
The Effects of the saving and banking glut on the U.S. economy
We use a quantitative equilibrium model with houses, collateralized debt, and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one-fourth and one-third of the increase in U.S. house prices and household debt that preceded the financial crisis. The key to these findings is that the model generates the sustained low level of interest rates observed over that period.
Journal Article
Asset Diversification and Low Debt Are the Keys to Building and Maintaining Wealth
Greatly expanded access to home mortgages during the 1980s, 1990s, and 2000s appeared to make the American dream a reality for millions of families. Homeownership was attainable by many who, for the first time, were able to take out a mortgage with an extremely low or no down payment ? even if they had a blemished credit history or none at all. For those with access to their accumulated home equity through mortgage refinancing or other home-secured borrowing, as well as to other sources of credit, lack of available cash no longer meant that they had to delay making routine purchases, buying a ...
Newsletter
The dynamic relationship between global debt and output
Given the ramifications of indebtedness for global growth, researchers and policymakers are keenly interested in the mechanisms underlying the linkages between debt and economic output. In our research, summarized in this article, we find that a debt shock adversely affects future economic output, and the impact is most pronounced in developing countries and in countries with a fixed exchange rate regime. This information and related results from the study are useful for policymakers considering appropriate levels of debt as well as an exchange rate regime that is most conducive to economic ...
Working Paper
The Effects of the Saving and Banking Glut on the U.S. Economy
We use a quantitative equilibrium model with houses, collateralized debt and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one fourth and one third of the increase in U.S. house prices and household debt that preceded the financial crisis. The key to these findings is that the model generates the sustained low level of interest rates observed over that period.
Report
Household leveraging and deleveraging
U.S. households' debt skyrocketed between 2000 and 2007, but has since been falling. This leveraging and deleveraging cycle cannot be accounted for by the liberalization and subsequent tightening of mortgage credit standards that occurred during the period. We base this conclusion on a quantitative dynamic general equilibrium model calibrated using macroeconomic aggregates and microeconomic data from the Survey of Consumer Finances. From the perspective of the model, the credit cycle is more likely due to factors that impacted house prices more directly, thus affecting the availability of ...