Household Debt Overhang Did Hardly Cause a Larger Spending Fall During the Financial Crisis in Australia

Higher household debt has been associated with lower future GDP growth across a broad set of 80 countries over the period from 1950 to 2016. Several institutional factors, such as flexible exchange rates, capital account openness, and higher financial development and inclusion, appear to mitigate this negative relationship between an increase in household debt and lower future GDP growth. Three mutually reinforcing mechanisms help explain this relationship. First, increases in household debt amplify the probability of future banking crises which significantly disrupt financial intermediation. Second, crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms. Third, debt overhang impairs household consumption when negative shocks hit.

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Household Debt Overhang and Labor Supply

SSRN Electronic Journal ◽

10.2139/ssrn.2700781 ◽

2015 ◽

Cited By ~ 11

Author(s):

Asaf Bernstein

Keyword(s):

Labor Supply ◽

Household Debt ◽

Debt Overhang

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Is a Household Debt Overhang Holding Back Consumption?

SSRN Electronic Journal ◽

10.2139/ssrn.2132615 ◽

2012 ◽

Cited By ~ 4

Author(s):

Karen E. Dynan

Keyword(s):

Household Debt ◽

Debt Overhang ◽

Holding Back

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Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises

American Economic Journal Macroeconomics ◽

10.1257/mac.6.2.1 ◽

2014 ◽

Vol 6 (2) ◽

pp. 1-28 ◽

Cited By ~ 28

Author(s):

Atif Mian ◽

Amir Sufi ◽

Francesco Trebbi

Keyword(s):

Financial Crisis ◽

Financial Crises ◽

Strong Support ◽

Financial Reform ◽

Financial Reforms ◽

Debt Overhang ◽

Large Sample ◽

Political Constraints ◽

Clear Cut ◽

The Us

Countries become more politically polarized and fractionalized following financial crises, reducing the likelihood of major financial reforms precisely when they might have especially large benefits. The evidence from a large sample of countries provides strong support for the hypotheses that following a financial crisis, voters become more ideologically extreme and ruling coalitions become weaker, independently of whether they were initially in power. The evidence that increased polarization and weaker governments reduce the chances of financial reform and that financial crises lead to legislative gridlock and anemic reform is less clear-cut. The US debt overhang resolution is discussed as an illustration. (JEL D72, E32, E44, G01, H63)

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Post Financial Crisis and Macroeconomic Fundamentals on Household Debt in Advanced Economies

Summer - GATR Journal of Finance and Banking Review ◽

10.35609/jfbr.2017.2.3(6) ◽

2017 ◽

Vol 2 (3) ◽

pp. 36-41

Author(s):

Siti Aminah Mainal ◽

Catherine S F Ho ◽

Jamaliah Mohd Yusof

Keyword(s):

Financial Crisis ◽

Global Financial Crisis ◽

Panel Data Analysis ◽

Control Variable ◽

Housing Price ◽

Household Debt ◽

Macroeconomic Factors ◽

Crisis Period ◽

Advanced Economies ◽

Macroeconomic Fundamentals

Objective - The unwarranted household debt initiated the global financial crisis which led to severe worldwide financial instability. Deleveraging process which has been taking place since the crisis has been slow and there is no quick fix to the debt issue. The lack of study on the effect of financial crisis on household debt justifies the objective to investigate macroeconomic fundamentals and financial crisis on household debt. Methodology/Technique - This study applies panel data analysis in ten advanced economies from 2001 to 2013. The random effect (RE) generalized least square estimator is used in the regression to examine macroeconomic factors and post financial crisis period as control variable on household debt. Findings - Findings confirm that post financial crisis period has significant negative effect on household debt which affirmed the deleveraging process in most advanced economies. Economic growth and household disposable income too have negative relation with household debt. Nonetheless, macroeconomic factors such as inflation, housing price and household consumption encourage household debt in advanced economies. Novelty - This study suggests that empirical evidence support that household avert from borrowing post financial crisis. Intensification of housing price and other consumption expenditure, if left unrestrained, may elicit another debt crisis. These are challenges faced by policy makers to curb household debt which entail risks for households, the financial system and the wider economy. Type of Paper: Empirical Keywords: Household Debt; Post Financial Crisis; Macroeconomic Factors. JEL Classification: G01, G02.

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