Why household debt makes economies prone to crises of confidence
Date Issued
2016-01-09
Author(s)
Abstract
Crises of confidence turn booms into busts. Bloated household balance sheets and high debt offer the right ingredients for a confidence-driven housing bust. This column develops an analytic framework that accommodates the potential role of confidence fluctuations as a source of uncertainty in the economy. Current debt levels are shown to determine the exposure to crises of confidence. The results point to a clear role for macroprudential policy in the prevention of such crises.
Language
English
Keywords
Crises of confidence
household debt
HSG Classification
contribution to practical use / society
HSG Profile Area
SEPS - Economic Policy
Refereed
No
Publisher
VOX (CEPR's Policy Portal)
Subject(s)
Eprints ID
246685