What drives consumer debt dynamics?

John Carter Braxton and Edward Knotek

Economic Review, 2012, vol. 97, issue Q IV

Abstract: Consumers generally have been reducing their debt levels in the wake of the housing bust, and many policymakers and economists have pointed to this deleveraging as an important drag on the recovery from the recession. ; A key driving factor has been the sharp decline in the number of consumers taking on additional debt. With fewer borrowers taking advantage of low interest rates to take on debt and expand spending, accommodative monetary policy is less effective than in normal times. ; But Knotek and Braxton find that a modest rebound is now under way in the number of consumers increasing their debt. The trend is evident across geographic regions, including areas that experienced strong debt growth during the housing bubble, suggesting that debt overhang may be playing only a limited role in the consumer debt dynamics of the recovery.

Date: 2012
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