Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Sep, 2022, Volume 90, Issue 5

Household Leverage and the Recession

https://doi.org/10.3982/ECTA16455
p. 2471-2505

Callum Jones, Virgiliu Midrigan, Thomas Philippon

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.


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Supplemental Material

Supplement to "Household Leverage and the Recession"

Callum Jones, Virgiliu Midrigan, and Thomas Philippon

This zip file contains the replication files for the manuscript.  It also contains an additional appendix with material not found within the manuscript.

Supplement to "Household Leverage and the Recession"

Callum Jones, Virgiliu Midrigan, and Thomas Philippon

This online appendix contains material not found within the manuscript.

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