Who Bears the Cost of Recessions? The Role of House Prices and Household Debt

Atif Mian and Amir Sufi

No 22256, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This chapter reviews empirical estimates of differential income and consumption growth across individuals during recessions. Most existing studies examine the variation in income and consumption growth across individuals by sorting on ex ante or contemporaneous income or consumption levels. We build on this literature by showing that differential shocks to household net worth coming from elevated household debt and the collapse in house prices play an underappreciated role. Using zip codes in the United States as the unit of analysis, we show that the decline in numerous measures of consumption during the Great Recession was much larger in zip codes that experienced a sharp decline in housing net worth. In the years prior to the recession, these same zip codes saw high house price growth, a substantial expansion of debt by homeowners, and high consumption growth. We discuss what models seem most consistent with this striking pattern in the data, and we highlight the increasing body of macroeconomic evidence on the link between household debt and business cycles. Our main conclusion is that housing and household debt should play a larger role in models exploring the importance of household heterogeneity on macroeconomic outcomes and policies.

JEL-codes: E21 E32 E44 E51 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-mac and nep-ure
Note: AP CF EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.nber.org/papers/w22256.pdf (application/pdf)

Related works:
Chapter: Who Bears the Cost of Recessions? The Role of House Prices and Household Debt (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:22256

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w22256

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().