Working Paper: NBER ID: w18941
Authors: Alejandro Justiniano; Giorgio E. Primiceri; Andrea Tambalotti
Abstract: U.S. households' debt skyrocketed between 2000 and 2007, and has been falling since. This leveraging (and deleveraging) cycle cannot be accounted for by the liberalization, and subsequent tightening, of credit standards in mortgage markets observed during the same 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 credit through a collateral channel. In either case, the macroeconomic consequences of leveraging and deleveraging are relatively minor, because the responses of borrowers and lenders roughly wash out in the aggregate.
Keywords: household debt; leveraging; deleveraging; credit cycle; collateral constraints
JEL Codes: E21; E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in house prices (R31) | Changes in borrowing capacity (G21) |
| Factors affecting house prices (R31) | Credit cycle (E32) |
| Credit liberalization (F65) | Counterfactual behavior of debt variables (E19) |
| Credit tightening (E51) | Debt-to-real estate ratio falls (G21) |
| Asymmetry in borrowing constraint (D10) | Spikes in debt-to-collateral ratio when house prices decline (F65) |
| Leveraging cycle (E32) | Impact on macroeconomy (E60) |