Sectoral Debt and Global Dollar Cycles in Developing Economies

Bada Han, Rashad Ahmed, Joshua Aizenman and Yothin Jinjarak

No 2024/030, IMF Working Papers from International Monetary Fund

Abstract: We explore the role of sectoral debt dynamics in shaping business cycles in a sample of 52 Emerging Market Economies (EMEs) and Frontier Market Economies (FMEs) from 2005 to 2021. Higher household debt levels and growth are associated with significantly slower GDP growth in more developed EMEs but not in less developed EMEs and FMEs. We also examine the relationship between US dollar cycles, sectoral debt levels and growth, and economic activity. Among developed EMEs, higher expected household debt growth magnifies the impact of US dollar fluctuations on economic activity, with significant but less persistent effects on consumption and more persistent effects on investment. Our empirical findings highlight the important role of household debt dynamics in relatively developed EMEs.

Keywords: Sectoral Debt; Household Debt; Dollar Cycle; Emerging Markets; debt growth; household debt growth; debt level; appreciation shock; debt cycle; Business cycles; Consumption; Income; Global (search for similar items in EconPapers)
Pages: 43
Date: 2024-02-16
New Economics Papers: this item is included in nep-fdg and nep-opm
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