Private debt overhang and the government spending multiplier: Evidence for the United States

Bernardini, Marco; Peersman, Gert

doi:10.1002/jae.2618

Cited by 65 publications

(57 citation statements)

References 74 publications

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“…If the share of constrained households is sufficiently large, which corresponds to a high level of private indebtedness, Keynesian-multiplier effects emerge. Bernardini and Peersman (2015) provide empirical support for the relationship between the effectiveness of fiscal policy and private indebtedness. Using historical U.S. data, they show that the government spending multiplier is considerably larger in periods of private debt overhang.…”

Section: Introductionmentioning

confidence: 79%

Austerity, Inequality, and Private Debt Overhang

Klein

Winkler

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This result is robust to alternative identifications of fiscal consolidations, to different ways of defining periods of private debt overhang, and to controlling for the state of the business cycle. Terms of use: Documents inWe explore different channels through which our findings can be rationalized.

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Section: Introductionmentioning

confidence: 79%

Austerity, Inequality, and Private Debt Overhang

Klein

Winkler

2017

SSRN Journal

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“…We construct this trend by running a Hodrick and Prescott () (HP) filter with a very high smoothing parameter,

λ = 10^{4}

. This approach is useful in capturing the longer duration of credit cycles, and has been previously used in the literature (e.g., Drehmann and Tsatsaronis , Bernardini and Peersman ) . In particular, our choice of λ assumes that credits cycles are twice as long as business cycles .…”

Section: Econometric Methodologymentioning

confidence: 99%

Household Debt Overhang and Transmission of Monetary Policy

Alpanda¹,

Zubairy²

2018

J of Money Credit Banking

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We investigate how the level of household indebtedness affects the monetary transmission mechanism in the U.S. economy. Using state‐dependent local projection methods, we find that the effects of monetary policy are less powerful during periods of high household debt. In particular, the impact of monetary policy shocks is smaller on GDP, consumption, residential investment, house prices, and household debt during a high‐debt state. We then build a partial equilibrium model of borrower households with financial constraints to rationalize these facts. The model points to the weakening of the home equity loan channel as a possible reason for the decline in monetary policy effectiveness when initial debt levels are high.

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“…Second, unlike in the U.S., …scal policy is idiosyncratic to the country. 6 Third, the e¢ cacy of the stabilization policy may depend on both the economic and …scal conditions in each country at the time of implementation.…”

Section: Modelmentioning

confidence: 99%

“…4 Given recent sovereign debt issues in the Euro Area, note that our speci…c focus is on how the policy e¤ects depend on government debt levels, but their e¤ects may also depend on level of private debt. Bernardini and Peersman (2015) …nd evidence that government spending is more e¤ective and has larger multipliers during periods of high private debt. On the other hand, Alpanda and Zubairy (2017) show that monetary policy shocks are less e¤ective at stimulating the economy during periods of high household debt.…”

Section: Introductionmentioning

confidence: 99%

Debt and Stabilization Policy: Evidence from a Euro Area FAVAR

Young

Owyang

Zubairy

2017

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The Euro-area poses a unique problem in evaluating policy: a currency union with a shared monetary policy and country-speci…c …scal policy. Analysis can be further complicated if high levels of public debt a¤ect the performance of stabilization policy. We construct a framework capable of handling these issues with an application to Euro-Area data. In order to incorporate multiple macroeconomic series from each country but, simultaneously, treat country-speci…c …scal policy, we develop a hierarchical factor-augmented VAR with zero restrictions on the loadings that yield country-level factors. Monetary policy, then, responds to area-wide conditions but …scal policy responds only to its countrylevel conditions. We …nd that there is broad quantitative variation in di¤erent countries' responses to area-wide monetary policy and both qualitative and quantitative variation in responses to country-speci…c …scal policy. Moreover, we …nd that debt conditions do not diminish the e¤ectiveness of policy in a signi…cant manner, suggesting that any negative e¤ects must come through other channels.

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Private debt overhang and the government spending multiplier: Evidence for the United States

Cited by 65 publications

References 74 publications

Austerity, Inequality, and Private Debt Overhang

Austerity, Inequality, and Private Debt Overhang

Household Debt Overhang and Transmission of Monetary Policy

Debt and Stabilization Policy: Evidence from a Euro Area FAVAR

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