NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Household Leverage and the Recession of 2007 to 2009

Atif R. Mian, Amir Sufi

NBER Working Paper No. 15896
Issued in April 2010
NBER Program(s):   CF   EFG   IFM   ME

We show that household leverage as of 2006 is a powerful statistical predictor of the severity of the 2007 to 2009 recession across U.S. counties. Counties in the U.S. that experienced a large increase in household leverage from 2002 to 2006 showed a sharp relative decline in durable consumption starting in the third quarter of 2006 – a full year before the official beginning of the recession in the fourth quarter of 2007. Similarly, counties with the highest reliance on credit card borrowing reduced durable consumption by significantly more following the financial crisis of the fall of 2008. Overall, our statistical model shows that household leverage growth and dependence on credit card borrowing as of 2006 explain a large fraction of the overall consumer default, house price, unemployment, residential investment, and durable consumption patterns during the recession. Our findings suggest that a focus on household finance may help elucidate the sources macroeconomic fluctuations.

download in pdf format
   (315 K)

email paper

This paper is available as PDF (315 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15896

Published: Household Leverage And The Recession Of 2007 To 2009 (with Amir Sufi) IMF Economic Review, May 2010 (inaugural issue).

Users who downloaded this paper also downloaded these:
Mian, Sufi, and Trebbi w16685 Foreclosures, House Prices, and the Real Economy
Mian and Sufi w15283 House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis
Mian and Sufi w13936 The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis
Jagannathan, Kapoor, and Schaumburg w15404 Causes of the Great Recession of 2007-9: The Financial Crisis is the Symptom not the Disease!
Hurd and Rohwedder w16407 Effects of the Financial Crisis and Great Recession on American Households
 
Publications
Activities
Meetings
Data
People
About

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

Contact Us