Durable and nondurable consumption responses to indebtedness shocks: A cross-country analysis

Fernando Barros Jr (), Bruno Delalibera (), Juliano Galle () and Fábio Gomes ()
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Fernando Barros Jr: FEARP/USP
Bruno Delalibera: Universitat de Barcelona
Juliano Galle: UFR
Fábio Gomes: FEARP/USP

Economics Bulletin, 2025, vol. 45, issue 3, 1326 - 1340

Abstract: Using a Panel-VAR model for 20 OECD countries from 2007Q3 to 2019Q4, we examine how durable and nondurable goods consumption responds to household indebtedness shocks. Our results indicate that durable good consumption responds more strongly and negatively to an indebtedness shock compared to nondurable consumption. Additionally, higher household indebtedness is associated with a decline in economic activity. These findings can inform policies aimed at mitigating the adverse effects of household indebtedness, particularly during periods of contractionary monetary policy, when higher interest rates increase debt service burdens and compromise future disposable income.

Keywords: Consumption; Indebtedness; Panel-VAR; Impulse-Response Analysis; Cross-Country (search for similar items in EconPapers)
JEL-codes: C2 E2 (search for similar items in EconPapers)
Date: 2025-09-30
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