Private Sector Deleveraging and Growth Following Busts

Author/Editor:

Sally Chen ; Minsuk Kim ; Marijn Otte ; Kevin Wiseman ; Aleksandra Zdzienicka

Publication Date:

February 23, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Balance sheet recessions have been a drag on activity after the Global Financial Crisis, underscoring the important role of balance sheet adjustment for resuming sustained growth. In this paper we examine private sector deleveraging experiences across 36 advanced and emerging economies countries since 1960. We consider the common features and divergent experiences of deleveraging episodes across countries, and analyze empirically the impact of different aspects of deleveraging during the bust phase of leverage cycles on subsequent medium-term growth. The results suggest that larger and quicker unwinding of non-financial sector debt overhangs is associated with sizable medium-term output gains, and that policies should focus on facilitating up-front balance sheet adjustment.

Series:

Working Paper No. 2015/035

Subject:

Financial crises Financial statements National accounts Private debt Production Production growth Public debt Public financial management (PFM)

English

Publication Date:

February 23, 2015

ISBN/ISSN:

9781498333405/1018-5941

Stock No:

WPIEA2015035

Pages:

37

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