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Remaking RetirementDebt in an Aging Economy$
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Olivia Mitchell and Annamaria Lusardi

Print publication date: 2020

Print ISBN-13: 9780198867524

Published to Oxford Scholarship Online: November 2020

DOI: 10.1093/oso/9780198867524.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 23 January 2022

Understanding the Macro-financial Effects of Household Debt

Understanding the Macro-financial Effects of Household Debt

A Global Perspective

Chapter:
(p.226) Chapter 12 Understanding the Macro-financial Effects of Household Debt
Source:
Remaking Retirement
Author(s):

Adrian Alter

Alan Feng

Nico Valckx

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198867524.003.0012

Higher household debt has been associated with lower future GDP growth across a broad set of 80 countries over the period from 1950 to 2016. Several institutional factors, such as flexible exchange rates, capital account openness, and higher financial development and inclusion, appear to mitigate this negative relationship between an increase in household debt and lower future GDP growth. Three mutually reinforcing mechanisms help explain this relationship. First, increases in household debt amplify the probability of future banking crises which significantly disrupt financial intermediation. Second, crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms. Third, debt overhang impairs household consumption when negative shocks hit.

Keywords:   older adults, household debt, GDP growth, banking crisis, expectations

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