Household Debt Overhang and Transmission of Monetary Policy Academic Article

abstract

• 2018 The Ohio State University We investigate how the level of household indebtedness affects the monetary transmission mechanism in the U.S. economy. Using state-dependent local projection methods, we find that the effects of monetary policy are less powerful during periods of high household debt. In particular, the impact of monetary policy shocks is smaller on GDP, consumption, residential investment, house prices, and household debt during a high-debt state. We then build a partial equilibrium model of borrower households with financial constraints to rationalize these facts. The model points to the weakening of the home equity loan channel as a possible reason for the decline in monetary policy effectiveness when initial debt levels are high.

authors

• Zubairy, Sarah

published proceedings

• JOURNAL OF MONEY CREDIT AND BANKING

altmetric score

• 8.75

author list (cited authors)

• Alpanda, S., & Zubairy, S.

citation count

• 52

complete list of authors

• Alpanda, Sami||Zubairy, Sarah

publication date

• August 2019

publisher

• Wiley  Publisher

published in

• Journal of Money, Credit and Banking  Journal

keywords

• E21
• E32
• E52
• Home Equity Loans
• Household Debt
• Monetary Policy

Digital Object Identifier (DOI)

• 10.1111/jmcb.12548

start page

• 1265

end page

• 1307

volume

• 51

issue

• 5

URL

• http://dx.doi.org/10.1111/jmcb.12548