Household Leveraging and Deleveraging - Federal Reserve Bank of New York

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Staff Reports

Household Leveraging and Deleveraging

March 2013 Number 602

JEL classification: E21, E32

Authors: Alejandro Justiniano, Giorgio Primiceri, and Andrea Tambalotti

U.S. households' debt skyrocketed between 2000 and 2007, but has since been falling. This leveraging and deleveraging cycle cannot be accounted for by the liberalization and subsequent tightening of mortgage credit standards that occurred during the period. We base this conclusion on a quantitative dynamic general equilibrium model calibrated using macroeconomic aggregates and microeconomic data from the Survey of Consumer Finances. From the perspective of the model, the credit cycle is more likely due to factors that impacted house prices more directly, thus affecting the availability of credit through a collateral channel. In either case, the macroeconomic consequences of leveraging and deleveraging are relatively minor because the responses of borrowers and lenders roughly wash out in the aggregate.

Available only in PDF pdf

33 pages / 616 kb

For a published version of this report, see Alejandro Justiniano, Giorgio Primiceri, and Andrea Tambalotti, "Household Leveraging and Deleveraging," Review of Economic Dynamics 18, no. 1 (January 2015): 3-20.

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