Household Leverage and the Recession

Callum Jones, Virgiliu Midrigan and Thomas Philippon ()

No 16965, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We evaluate and partially challenge the ‘household leverage’ view of the Great Recession. In the data, employment and consumption declined more in states where household debt declined more. We study a model where liquidity constraints amplify the response of consumption and employment to changes in debt. We estimate the model with Bayesian methods combining state and aggregate data. Changes in household credit limits explain 40% of the differential rise and fall of employment across states, but a small fraction of the aggregate employment decline in 2008-2010. Nevertheless, since household deleveraging was gradual, credit shocks greatly slowed the recovery.

JEL-codes: E2 E4 E5 G0 G01 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-ure
Note: AP EFG ME
References: View complete reference list from CitEc
Citations: View citations in EconPapers (137)

Published as Callum Jones & Virgiliu Midrigan & Thomas Philippon, 2022. "Household Leverage and the Recession," Econometrica, Econometric Society, vol. 90(5), pages 2471-2505, September.

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Related works:
Working Paper: Household Leverage and the Recession (2018)
Working Paper: Household Leverage and the Recession (2018)
Working Paper: Household Leverage and the Recession (2016)
Working Paper: Household Leverage and the Recession (2013)
Working Paper: Household Leverage and the Recession (2011)
Working Paper: Household Leverage and the Recession (2011)
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