Arbeitspapier
Long-term debt propagation and real reversals
We examine a propagation mechanism that arises from households' long-term borrowing and show empirically that it has sizable real effects. The mechanism recognises that when there is long-term debt, an impulse to new borrowing generates a predictable hump-shaped path of future debt service. We confirm this pattern using a novel multi-country dataset of debt flows. Whereas new borrowing boosts output contemporaneously, debt service depresses output. Credit booms thus lead to predictable reversals in real economic activity several years later. This long-term debt propagation channel is the main reason for why indicators of credit cycles have predictive power for future economic activity.
- ISBN
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978-952-323-434-5
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Finland Research Discussion Papers ; No. 5/2023
- Classification
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Wirtschaft
General Aggregative Models: Forecasting and Simulation: Models and Applications
Financial Markets and the Macroeconomy
Financial Crises
Household Saving; Personal Finance
- Subject
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new borrowing
debt service
financial cycle
financial flows and real effects
- Event
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Geistige Schöpfung
- (who)
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Drehmann, Mathias
Juselius, Mikael
Korinek, Anton
- Event
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Veröffentlichung
- (who)
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Bank of Finland
- (where)
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Helsinki
- (when)
-
2023
- Handle
- Last update
- 04.05.20252033, 5:44 PM CEST
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Drehmann, Mathias
- Juselius, Mikael
- Korinek, Anton
- Bank of Finland
Time of origin
- 2023
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