Sectoral Debt and Global Dollar Cycles in Developing Economies
February 16, 2024
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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
Pages:
43
Volume:
2024
DOI:
Issue:
030
Series:
Working Paper No. 2024/030
Stock No:
WPIEA2024030
ISBN:
9798400267208
ISSN:
1018-5941
