A Short Empirical Note on Household Debt, Financialization, and Macroeconomic Performance

Yk Kim

No 1107, Working Papers from Trinity College, Department of Economics

Abstract: We empirically examine the relationship between U.S. output and household debt. To account for structural change due to financial liberalization, we divide the sample at the fourth quarter of 1982. We find structural differences between earlier and later business cycles for the U.S. household sector and its relation to the macroeconomy. In the regression analysis for pre-1982, we find no evidence that the household debt variables had any negative effect on output. However, we find some evidence that the household debt variables have negative effects on output for the post-1982 period. A formal structural break test provides evidence of a structural change in the relationship of U.S. output to household debt. Unit root tests for the separate samples show that none of the household variables possesses a unit root in the earlier period, yet all of them do in the later period, indicating fundamental differences between earlier and later periods in terms of the data generating process.

Keywords: household debt; output; financial liberalization; structural break (search for similar items in EconPapers)
JEL-codes: B59 E29 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2011-08
New Economics Papers: this item is included in nep-his and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www3.trincoll.edu/repec/WorkingPapers2011/WP11-07.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tri:wpaper:1107

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