NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Detecting "Bad" Leverage

Amir Sufi


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book Risk Topography: Systemic Risk and Macro Modeling, Markus K. Brunnermeier and Arvind Krishnamurthy, editors
Conference held April 28, 2011
Forthcoming from University of Chicago Press

This chapter seeks to answer the following question: how do regulators and policy makers know when a large increase in leverage will end badly? The answer to this question lies in the ability to detect whether an increase in household leverage is due to an expansion in the supply of credit or whether it is due to improvements in the productivity of borrowers. The strategy studied here is using micro-economic data on borrowers with a high elasticity of borrowing with respect to credit availability to isolate the supply versus productivity effects. If a sharp increase in leverage is due primarily to an increase in the supply of credit, the regulator has reason to be concerned. There are three facts that motivate the methodology: (1) when fueled by an expansion in the availability of credit, dramatic increases in leverage typically end badly, (2) there is a segment of the U.S. population that displays a very high elasticity of borrowing with respect to credit availability, and (3) asset prices are often a function of debt levels.

download in pdf format
   (209 K)

email paper

This paper is available as PDF (209 K) or via email.

An online appendix is available for this publication.

This paper was revised on October 19, 2012

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this chapter also downloaded these:
Geanakoplos and Pedersen Monitoring Leverage
Mian The Case for a Credit Registry
Landier and Thesmar Regulating Systemic Risk through Transparency: Tradeoffs in Making Data Public
Bassett, Gilchrist, Weinbach, and Zakrajsek Improving Our Ability to Monitor Bank Lending
Begenau, Piazzesi, and Schneider Remapping the Flow of Funds
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us