Slow Debt, Deep Recessions

Joachim Jungherr and Immo Schott

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 1, 224-59

Abstract: Business credit lags GDP growth by about one year. This contributes to high leverage during recessions and slow deleveraging. We show that a model in which firms use risky long-term debt replicates this slow adjustment of firm debt. In the model, slow-moving debt has important effects for real activity. High levels of firm debt issued during expansions are only gradually reduced during recessions. This generates an adverse feedback loop between high default rates and low investment and thereby amplifies the downturn. Sluggish deleveraging slows down the recovery.

JEL-codes: E23 E32 E44 G31 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mac.20190306 (application/pdf)
https://doi.org/10.3886/E120385V1 (text/html)
https://www.aeaweb.org/doi/10.1257/mac.20190306.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/mac.20190306.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Journal Article: Slow Debt, Deep Recessions (2022)
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:aea:aejmac:v:14:y:2022:i:1:p:224-59

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/mac.20190306

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().