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Household Debt, Corporate Debt, and the Real Economy: Some Empirical Evidence

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Listed:
  • Park, Donghyun

    (Asian Development Bank)

  • Shin, Kwanho

    (Korea University)

  • Tian, Shu

    (Asian Development Bank)

Abstract

The rapid accumulation of private debt is widely viewed as a major risk to financial and economic stability. This paper systematically and comprehensively assesses the effect of private debt buildup on economic growth. In the spirit of Mian, Sufi, and Verner (2017) that separately examine the effects of two types of private debt, i.e., household debt and corporate debt, on growth in developed economies, this study specifically provides new evidence on the growth–private debt nexus in both advanced and emerging market economies (EMEs). Moreover, we construct financial peaks in terms of the speed of debt accumulation rather than crisis dates and find that in both advanced and EMEs, corporate debt buildups cause more financial peaks than household debt buildups. Further, corporate debt-induced financial recessions inflict a bigger damage on output than household debt-induced financial recessions in EMEs. Overall, our evidence suggests that policy makers would do well to closely monitor not only household debt but also corporate debt.

Suggested Citation

  • Park, Donghyun & Shin, Kwanho & Tian, Shu, 2018. "Household Debt, Corporate Debt, and the Real Economy: Some Empirical Evidence," ADB Economics Working Paper Series 567, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0567
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    References listed on IDEAS

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    Cited by:

    1. Long, Teng & Bu, Kun & Du, Pengfei & Wang, Zhige, 2024. "Can educational investment mitigate the impact of aging on household leverage ratio?," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1335-1347.
    2. Yun Jung Kim & Jing Zhang, 2021. "The Relationship Between Debt and Output," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(1), pages 230-257, March.
    3. Zhenqian Huang, 2019. "Maintaining financial stability in Asia and the Pacific," MPDD Policy Briefs PB101, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    4. Qureshi, Irfan & Liaqat, Zara, 2020. "The long-term consequences of external debt: Revisiting the evidence and inspecting the mechanism using panel VARs," Journal of Macroeconomics, Elsevier, vol. 63(C).
    5. Eichengreen, Barry & Park, Donghyun & Shin, Kwanho, 2024. "Economic resilience: Why some countries recover more robustly than others from shocks," Economic Modelling, Elsevier, vol. 136(C).

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    More about this item

    Keywords

    : business cycle; corporate debt; crisis; debt; economic growth; household debt; output; private debt;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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