Household Leverage and the Recession

By Thomas Philippon, Virgiliu Midrigan. Social Science Research Network, 2011

219 citations recorded by the source corpus.

We evaluate and partially challenge the household leverage view of the Great Recession. In the data, employment and consumption declined more in U.S. states where household debt declined more. We study a model of a monetary union composed of many regions in which liquidity constraints shape the response of employment and consumption to changes in debt. We estimate the model with Bayesian methods combining state and aggregate data. Changes in household credit explain 40% of the differential rise and fall of employment across states, but a small fraction of the aggregate employment decline in 2007–2010. Nevertheless, since household deleveraging was gradual, credit shocks greatly slowed the recovery.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/0cd2e468ffafc157de921b2d3f57f5dd2c4ef87f

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Citations in the corpus

The Anatomy of the Transmission of Macroprudential Policies (2020, background): “Their collapse, channeled through the balance sheets of households (Mian et al., 2013; Mian and Sufi, 2014; Hall, 2011; Eggertsson and Krugman, 2012; Midrigan and Philippon, 2018) and intermediaries (Gertler and Kiyotaki, 2011; He and Krishnamurthy, 2013; Brunnermeier and Sannikov, 2014; Chodorow-Re”
The Housing Boom and Bust: Model Meets Evidence (2017, unknown): “Nathanson and Zwick (2017) argue the city of Las Vegas provides a stark example of how the perception of future availability of buildable land can affect residential investment and house prices.”