Sectoral Debt and Global Dollar Cycles in Developing Economies

IMF Working Papers, February 16, 2024

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Canonical URL: Sectoral Debt and Global Dollar Cycles in Developing Economies

Sample and period:
- Study covers a sample of 52 Emerging Market Economies (EMEs) and Frontier Market Economies (FMEs) from 2005 to 2021.
Household debt and GDP growth:
- Higher household debt levels and growth are associated with significantly slower GDP growth in more developed EMEs.
- The association between household debt and GDP growth is not found in less developed EMEs and FMEs.
Interaction with US dollar cycles:
- Among developed EMEs, higher expected household debt growth magnifies the impact of US dollar fluctuations on economic activity.
- The amplified effects on consumption are significant but less persistent.
- The amplified effects on investment are significant and more persistent.

Sectoral debt dynamics examined include household debt levels and debt growth across countries classified as EMEs and FMEs.
The analysis links sectoral (household) debt metrics with business-cycle outcomes (GDP growth, consumption, investment).
Global factor evaluated: US dollar cycles and their interaction with sectoral debt expectations.

Household debt dynamics play an important role in shaping macroeconomic outcomes in relatively developed EMEs.
The persistence differential—less persistent consumption effects versus more persistent investment effects—highlights distinct transmission channels from household debt and external (dollar) shocks to aggregate demand components.

By Bada Han, Rashad Ahmed, Joshua Aizenman, and Yothin Jinjarak; February 16, 2024 (IMF Working Paper).