Private Sector Deleveraging and Growth Following Busts

By Sally Chen, Minsuk Kim, Marijn Otte, Kevin Wiseman, Aleksandra Zdzienicka

February 23, 2015

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Sally Chen, Minsuk Kim, Marijn Otte, Kevin Wiseman, and Aleksandra Zdzienicka. Private Sector Deleveraging and Growth Following Busts, (USA: International Monetary Fund, 2015) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Balance sheet recessions have been a drag on activity after the Global Financial Crisis, underscoring the important role of balance sheet adjustment for resuming sustained growth. In this paper we examine private sector deleveraging experiences across 36 advanced and emerging economies countries since 1960. We consider the common features and divergent experiences of deleveraging episodes across countries, and analyze empirically the impact of different aspects of deleveraging during the bust phase of leverage cycles on subsequent medium-term growth. The results suggest that larger and quicker unwinding of non-financial sector debt overhangs is associated with sizable medium-term output gains, and that policies should focus on facilitating up-front balance sheet adjustment.

Subject: Financial crises, Financial statements, National accounts, Private debt, Production, Production growth, Public debt, Public financial management (PFM)

Keywords: Debt, Debt ratio, Deleveraging, Demand support, Economy, Financial crisis, Financial cycles, Financial statements, Global, Government debt threshold, Growth, Household debt, Leverage cycles, Leverage ratio, Private debt, Private sector, Private sector debt, Production growth, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/035
Stock No:

WPIEA2015035
ISBN:

9781498333405
ISSN:

1018-5941

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