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Macroeconomic effects of household debt: an empirical analysis

Yk Kim

Review of Keynesian Economics, 2016, vol. 4, issue 2, 127-150

Abstract: Multi-equation econometric frameworks are used to investigate the impact of household debt on GDP in the US. In the vector autoregression analysis capturing the transitory feedback effects, we observe a bidirectional positive feedback process between aggregate income and debt. According to the estimation of vector error correction models, there are negative long-run relationships between household debt and output. These empirical results provide a support for the view of the debt-driven business cycles.

Keywords: household debt; business cycles; financial instability hypothesis; cointegration; VAR; VECM (search for similar items in EconPapers)
JEL-codes: C32 E21 E32 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:elg:rokejn:v:4:y:2016:i:2:p127-150