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Transmission of sectoral debt shocks in OECD countries: Evidence from the income channel

Author

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  • Georgios Magkonis

    (University of Portsmouth)

  • Anastasia Theofilakou

    (Hellenic Ministry of Finance)

Abstract

We examine the propagation of debt shocks across sectors of the economy for OECD countries. Our focus lies on assessing the importance of the income channel as a main transmission mechanism of such shocks. Employing a Bayesian Panel VAR, we find strong debt contagion effects across sectors, which work through the income channel. Higher non-financial corporate debt drives down household incomes, increasing pressures for household deleveraging. By contrast, an increase in household debt boosts real incomes and domestic demand, and results in higher corporate leverage. Finally, we find that growth effects of sectoral debt shocks are conditional on country idiosyncrasies.

Suggested Citation

  • Georgios Magkonis & Anastasia Theofilakou, 2019. "Transmission of sectoral debt shocks in OECD countries: Evidence from the income channel," Working Papers in Economics & Finance 2019-02, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    • Handle: RePEc:pbs:ecofin:2019-02
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    More about this item

    Keywords

    Macroeconomic shocks; sectoral debt; panel BVAR;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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