## Understanding the Macro-Financial Effects of Household Debt: A Global Perspective

_IMF Working Papers, April 6, 2018_

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## Bibliographic details
- Authors: Adrian Alter, Alan Xiaochen Feng, Nico Valckx
- Published: April 6, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484349861.001

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### Key finding: household debt and future GDP growth
- The negative relationship between household debt and future GDP growth documented in Mian, Sufi, and Verner (2017) is confirmed for a wider set of countries over the period 1950–2016.

### Mechanisms explaining the negative relationship
- Debt overhang impairs household consumption when negative shocks hit.
- Increases in household debt heighten the probability of future banking crises, which significantly disrupts financial intermediation.
- Crash risk may be systematically neglected due to investors’ overoptimistic expectations associated with household debt booms.

### Institutional factors that mitigate the impact
- Flexible exchange rates are found to mitigate the negative impact of household debt on growth.
- Higher financial development mitigates the impact.
- Greater financial inclusion mitigates the impact.

### Tradeoffs and nuances
- The tradeoff between financial inclusion and stability nuances downside risks to growth.

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_Source: https://www.imf.org/en/publications/wp/issues/2018/04/06/understanding-the-macro-financial-effects-of-household-debt-a-global-perspective-45744_