Indebtedness, Deleveraging Dynamics and Macroeconomic Adjustment

Carlos Cuerpo, Ines Drumond (), Julia Lendvai, Peter Pontuch and Rafal Raciborski

No 477, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The current crisis revealed the unsustainability of private sector indebtedness levels, fuelled, in the recent past, by a prolonged period of rapid credit expansion in some EU Member States. The deleveraging process that is now taking place, although necessary, stands as a source of concern in terms of its implications for economic activity. Against this background, this paper aims to (i) identify the EU Member States that are currently facing deleveraging pressures in the non-financial private sector, making use of the informational content of various indebtedness indicators; (ii) assess quantitatively those pressures, using both a threshold approach, which compares the current level of households and non-financial corporations' debt with a static benchmark, and a stationarity approach, which goes a step further by taking into account valuation effects and the possibility of a time-varying "sustainable" level of indebtedness; (iii) refine the link between the identified deleveraging pressures and the actual adjustment of indebtedness through an analysis of the credit supply and demand conditions in each Member State; (iv) simulate the impact of a households' sector deleveraging shock using a dynamic stochastic general equilibrium model and assess the transmission mechanism through which such a shock influences the economic activity. Some policy implications are also discussed in the concluding section.

JEL-codes: C54 E21 E44 H31 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2013-04
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://ec.europa.eu/economy_finance/publications/ ... r/2013/ecp477_en.htm (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0477

Access Statistics for this paper

More papers in European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO ().