Working Paper: CEPR ID: DP15368
Authors: Dimitris Christelis; Michael Ehrmann; Dimitris Georgarakos
Abstract: Household debt in the United States has played a central role in the up-run and the aftermath of the global financial crisis. Despite this, our understanding of household debt and potential debt overhang is still limited. To shed light on this issue, we put U.S. household leverage in an international perspective, using household-level data for the United States and ten euro area economies. U.S. households have the highest prevalence of collateralized and non-collateralized debt, hold comparatively large amounts of loans, and face a higher debt-service burden, even though they have higher income and financial wealth. These differences are mainly related to the U.S. economic environment, which appears to be more conducive to both types of debt, primarily because a given level of collateral is associated with higher prevalence of collateralized debt, and larger amounts of it, in the United States.
Keywords: household debt; debt burden; household finance; counterfactual decompositions
JEL Codes: D12; E21; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Differences in the economic environment (F69) | Differences in debt prevalence and amounts between the U.S. and Euro Area countries (F34) |
| U.S. economic environment (N12) | Higher prevalence of collateralized debt in the U.S. compared to Euro Area countries (F34) |
| Higher average incomes (J31) | Higher debt-service-to-income ratio for U.S. households (G51) |
| Differences in household characteristics (D19) | Observed differences in debt holdings (H63) |
| U.S. economic environment (N12) | Higher vulnerability to financial stress during adverse economic conditions (F65) |