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Household debt and uncertainty: Private consumption after the Great Recession

Angel Estrada (), Eva Valdeolivas, Javier Valles and Daniel Garrote
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Daniel Garrote: Harvard Kennedy School

No 1415, Working Papers from Banco de España, Working Papers Homepage

Abstract: Household debt in many advanced economies has increased significantly since the 1980s and accelerated in the years prior to the Great Recession, resulting in an aggregate reduction of saving rates in the developed economies. Some of those economies are now deleveraging, which may be affecting their recovery. We try to disentangle how these financial developments influence private consumption in a panel of OECD countries, after controlling for the traditional determinants (income, net financial and non-financial wealth, and interest rates). Consistent with the changes in the distribution of financial constraints, we find that aggregate consumption is also driven by the dynamics of housing debt accumulation and deleveraging. Precautionary savings, due to labour income uncertainty, have also influenced household decisions especially, during the 2007-2009 period.

Keywords: private consumption; financial developments; precautionary savings; debt (search for similar items in EconPapers)
JEL-codes: E21 E44 F01 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-07
New Economics Papers: this item is included in nep-eec and nep-mac
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Journal Article: Household Debt and Uncertainty: Private Consumption after the Great Recession (2015) Downloads
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