Private Sector Deleveraging and Growth Following Busts

Sally Chen, Minsuk Kim, Marijn Otte, Kevin Wiseman and Aleksandra Zdzienicka

No 2015/035, IMF Working Papers from International Monetary Fund

Abstract: Balance sheet recessions have been a drag on activity after the Global Financial Crisis, underscoring the important role of balance sheet adjustment for resuming sustained growth. In this paper we examine private sector deleveraging experiences across 36 advanced and emerging economies countries since 1960. We consider the common features and divergent experiences of deleveraging episodes across countries, and analyze empirically the impact of different aspects of deleveraging during the bust phase of leverage cycles on subsequent medium-term growth. The results suggest that larger and quicker unwinding of non-financial sector debt overhangs is associated with sizable medium-term output gains, and that policies should focus on facilitating up-front balance sheet adjustment.

Keywords: WP; debt; private sector; financial crisis; economy; deleveraging; leverage cycles; financial cycles; growth; private sector debt; debt ratio; household debt; government debt threshold; leverage ratio; demand support; Private debt; Financial statements; Production growth; Global (search for similar items in EconPapers)
Pages: 37
Date: 2015-02-23
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Citations: View citations in EconPapers (13)

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