Credit to private sector, household debt and economic growth: An empirical investigation of EU countries
DOI:
https://doi.org/10.17811/ebl.11.4.2022.34-142Keywords:
credit supply, household debt, economic growth, fixed effects, panel thresholdAbstract
This paper investigates how the credit to private sector affects the impact of household debt on economic growth in 25 European Union countries over the period 1995-2018. The findings reveal that the positive effect of household debt on economic growth turns to negative with the onset of the 2008 global financial crisis (GFC) and beyond a certain point at around 58% of GDP, thus suggesting that their relationship is non-linear. Interestingly, the adverse effect subjects to the increased pressure of the credit to private sector when it is above 70%, and the pressure becomes even higher when the ratio is above 90%.
References
Alter, A., Feng, A. X. and Valckx, N. (2018). Understanding the macro-financial effects of household debt: A global perspective, International Monetary Fund.
Beck, T. and Levine, R. (2004). Stock markets, banks, and growth: Panel evidence, Journal of Banking & Finance 28(3): 423-442.
Borio, C. (2014). The financial cycle and macroeconomics: What have we learnt?, Journal of Banking & Finance 45: 182-198.
Crotty, J. (2009). Structural causes of the global financial crisis: a critical assessment of the new financial architecture', Cambridge journal of economics 33(4): 563-580.
Driscoll, J. C. and Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data, Review of economics and statistics 80(4): 549-560.
Hall, R. E. (1978). Stochastic implications of the life cycle-permanent income hypothesis: theory and evidence, Journal of political economy 86(6): 971-987.
Hansen, B. E. (1999). Threshold e ects in non-dynamic panels: Estimation, testing, and inference, Journal of econometrics 93(2): 345-368.
Jord a, O., Schularick, M. and Taylor, A. M. (2016). The great mortgaging: housing finance, crises and business cycles, Economic policy 31(85): 107-152.
Justiniano, A., Primiceri, G. E. and Tambalotti, A. (2015). Household leveraging and deleveraging, Review of Economic Dynamics 18(1): 3-20.
Levine, R., Loayza, N. and Beck, T. (2000). Financial intermediation and growth: Causality and causes, Journal of monetary Economics 46(1): 31-77.
Mian, A. and Su , A. (2009). The consequences of mortgage credit expansion: Evidence from the us mortgage default crisis, The Quarterly Journal of Economics 124(4): 1449-1496.
Mian, A., Su , A. and Verner, E. (2017). Household debt and business cycles worldwide, The Quarterly Journal of Economics 132(4): 1755-1817.
Purnanandam, A. (2011). Originate-to-distribute model and the subprime mortgage crisis, The review of financial studies 24(6): 1881-1915.
Schularick, M. and Taylor, A. M. (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008, American Economic Review 102(2): 1029-61.
Taylor, J. B. (2009). Economic policy and the financial crisis: an empirical analysis of what went wrong, Critical Review 21(2-3): 341-364.
Downloads
Published
How to Cite
Issue
Section
License
The works published in this journal are subject to the following terms:
1. Oviedo University Press (the publisher) retains the property rights (copyright) of published works, and encourages and enables the reuse of the same under the license specified in paragraph 2.
© Ediuno. Ediciones de la Universidad de Oviedo / Oviedo University Press
2. The works are published in the online edition of the journal under a Creative Commons Attribution-Non Commercial-Non Derives 3.0 Spain (legal text). You can copy, use, distribute, transmit and publicly display, provided that: i) you cite the author and the original source of publication (journal, publisher and URL of the work), ii) they are not used for commercial purposes, iii) mentions the existence and specifications of this license.
3. Conditions of self-archiving. The author can archive the post-print version of the article (publisher’s version) on the author’s personal website and/or on the web of the institution where he belong, including a link to the page of the journal and putting the way of citation of the work. Economics and Business Letters and its URL https://reunido.uniovi.es/index.php/EBL/index are the only authorized source for correctly giving the reference of the publisher’s version in every mention of the article.