Asymmetric Effects of Private Debt on Income Growth

Liaqat Zara () and Ahmed Muhammad Farid ()
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Liaqat Zara: Department of Economics, University of Waterloo, Waterloo, Canada
Ahmed Muhammad Farid: Department of Economics, University of Oxford, Oxford OX1 3UQ, UK

The B.E. Journal of Macroeconomics, 2023, vol. 23, issue 1, 337-373

Abstract: This paper uses a panel vector autoregressive model to study the differential effects of components of private debt on income growth for a large panel of countries. While household debt growth in a given period generally has a positive impact on income, this effect is much stronger for countries with relatively lower levels of income and household debt-to-GDP ratios. On the other hand, the responsiveness of income growth to an increase in corporate debt varies across countries, with a consistently negative impact in richer and/or more heavily indebted countries. A simple extension of our framework suggests the roles of investment and consumption spending in explaining the varying effects of household and corporate debt on growth. We carry out several exercises to illustrate the robustness of our results.

Keywords: private debt; debt threshold; household debt; panel VAR (search for similar items in EconPapers)
JEL-codes: C33 H31 H32 H6 O4 O57 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejm-2022-0004

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