TY  - JOUR
AU  - Jones, Callum
AU  - Midrigan, Virgiliu
AU  - Philippon, Thomas
TI  - Household Leverage and the Recession
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16965
PY  - 2011
Y2  - April 2011
DO  - 10.3386/w16965
UR  - http://www.nber.org/papers/w16965
L1  - http://www.nber.org/papers/w16965.pdf
N1  - Author contact info:
Callum J. Jones
Constitution Ave NW & 20th St NW
Washington, DC 20551
USA
E-Mail: jonescallum@gmail.com

Virgiliu Midrigan
Department of Economics
New York University
19 W. 4th St.
New York, NY 10012
Tel: 212/992-8081
Fax: 212/995-4186
E-Mail: virgiliu.midrigan@nyu.edu

Thomas Philippon
New York University
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY  10012-1126
Tel: 212/998-0490
Fax: 212/995-4233
E-Mail: tphilipp@stern.nyu.edu
AB  - We evaluate and partially challenge the ‘household leverage’ view of the Great Recession. In the data, employment and consumption declined more in states where household debt declined more. We study a model where liquidity constraints amplify the response of consumption and employment to changes in debt. We estimate the model with Bayesian methods combining state and aggregate data. Changes in household credit limits explain 40% of the differential rise and fall of employment across states, but a small fraction of the aggregate employment decline in 2008-2010. Nevertheless, since household deleveraging was gradual, credit shocks greatly slowed the recovery.
ER  -