Sectoral Debt and Global Dollar Cycles in Developing Economies

By Bada Han, Rashad Ahmed, Joshua Aizenman, Yothin Jinjarak

February 16, 2024

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Format: Chicago

Bada Han, Rashad Ahmed, Joshua Aizenman, and Yothin Jinjarak. Sectoral Debt and Global Dollar Cycles in Developing Economies, (USA: International Monetary Fund, 2024) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We explore the role of sectoral debt dynamics in shaping business cycles in a sample of 52 Emerging Market Economies (EMEs) and Frontier Market Economies (FMEs) from 2005 to 2021. Higher household debt levels and growth are associated with significantly slower GDP growth in more developed EMEs but not in less developed EMEs and FMEs. We also examine the relationship between US dollar cycles, sectoral debt levels and growth, and economic activity. Among developed EMEs, higher expected household debt growth magnifies the impact of US dollar fluctuations on economic activity, with significant but less persistent effects on consumption and more persistent effects on investment. Our empirical findings highlight the important role of household debt dynamics in relatively developed EMEs.

Subject: Business cycles, Consumption, Economic growth, External debt, Income, National accounts, Public debt

Keywords: Appreciation shock, Business cycles, Consumption, Debt cycle, Debt growth, Debt level, Dollar Cycle, Emerging Markets, Global, Household Debt, Household debt growth, Income, Sectoral Debt

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/030
Stock No:

WPIEA2024030
ISBN:

9798400267208
ISSN:

1018-5941

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