Consumption response to aggregate shocks and the role of leverage

Kovacs, Agnes, Rostom, May and Bunn, Philip (2018) Consumption response to aggregate shocks and the role of leverage. CFM Discussion Paper Series (CFM-DP2018-20). Centre For Macroeconomics, London School of Economics and Political Science, London, UK.

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Abstract

This paper investigates the relationship between mortgage leverage and consumption around the 2008 financial crisis. Using data from the UK’s Family Expenditure Survey and Wealth and Asset Survey, we first show that high-leveraged households made larger cuts to consumption following the financial crisis, and this was largely driven by young households. Second, using a life-cycle framework, we investigate the channels by which high-leveraged households may have reduced consumption by more than others. Our key finding is that credit supply tightening is the main driver of the empirical co-movement between pre-crisis leverage and consumption growth after 2008.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information:	© 2018 Centre for Macroeconomics
Divisions:	Centre for Macroeconomics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D1 - Household Behavior and Family Economics > D10 - General D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
Date Deposited:	05 Oct 2018 14:55
Last Modified:	15 Sep 2023 23:45
URI:	http://eprints.lse.ac.uk/id/eprint/90378

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