Do debt service costs affect macroeconomic and financial stability?

Mathias Drehmann and John Juselius

BIS Quarterly Review, 2012

Abstract: Excessive private sector debt can undermine economic stability. In this special feature, we propose the debt service ratio (DSR) as a measure of the financial constraints imposed by private sector indebtedness, and investigate its association with recessions and financial crises. We find that the DSR prior to economic slumps is related to the size of the subsequent output losses. Moreover, the DSR provides a very accurate early warning signal of impending systemic banking crises at horizons of up to one to two years in advance. We conclude that the DSR can serve as a useful supplementary indicator for the build-up of vulnerabilities in the real economy and financial sector.

JEL-codes: E37 E44 G01 G21 (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (117)

Downloads: (external link)
http://www.bis.org/publ/qtrpdf/r_qt1209edf (application/pdf)
http://www.bis.org/publ/qtrpdf/r_qt1209ehtm (text/html)

Related works:
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:bis:bisqtr:1209e

Access Statistics for this article

BIS Quarterly Review is currently edited by Christian Upper

More articles in BIS Quarterly Review from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().