Front Matter
Author: Romain Bouis

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© 2021 International Monetary Fund

WP/21/257

IMF Working Paper

Monetary and Capital Markets Department

Household Deleveraging and Saving Rates: A Cross-Country Analysis

Prepared by Romain Bouis*

Authorized for distribution by Montfort Mlachila October 2021

IMF Working Papers describe research in progress by the author and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Abstract

Historically high household debt in several economies is calling for a deleveraging, but according to some economists, this adjustment can slow GDP growth by weighing on consumption. Using a sample of advanced and emerging market economies, this paper finds evidence of a negative relationship between changes of household debt-to-income ratios and saving rates. This relationship is however asymmetric, being significant only for debt build-ups. Declining debt ratios and saving are significantly related in some economies, but the relationship is driven by consumer credit, not by mortgages. Results therefore suggest that the economic cost associated with household deleveraging may be overestimated and motivate a deleveraging via lower mortgages.

JEL Classification Numbers: G01; E21; E44.

Keywords: Household debt; saving rates; consumption growth; deleveraging; consumer credit; mortgages; housing equity withdrawal.

Author’s E-Mail Address: rbouis@imf.org

Contents

  • ABSTRACT

  • I. INTRODUCTION

  • II. DEFINITION OF HOUSEHOLD DELEVERAGING

  • III. THE RELATIONSHIP BETWEEN CREDIT AND SAVING

  • A. Why Deleveraging and Saving Rates are Empirically Positively Correlated

  • B. Implications in Terms of Cross-Country Heterogeneity

  • IV. EMPIRICAL APPROACH

  • V. ESTIMATION RESULTS

  • A. Baseline Regressions

  • B. Cross-Country Heterogeneity and the Role of Credit Market Institutions

  • C. Consumer versus Mortgage Debt Ratios

  • VI. CONCLUSION

  • REFERENCES

  • Figures

  • 1 – Changes in average saving rates from credit booms to deleveraging periods

  • 2 – Changes of macroeconomic variables around historical debt turning points

  • 3 – Net credit-to-disposable income ratios and saving rates

  • 4 – Contributions of changes of consumer and of mortgage debt ratios

  • Tables

  • 1 – Changes in household debt ratios and saving rates during full boom-bust credit cycles

  • 2 – Changes of household debt ratios and saving rates in selected ongoing deleveraging economies

  • 3 – Differences in credit market features, homeownership rates, and pension funds

  • 4 – Saving rate and change in debt ratios, baseline

  • 5 – Saving rate and interaction effects of institutional settings with change of debt ratios

  • 6 – Saving rate, consumer credit, and mortgages

  • Appendix Tables

  • 1 – Variable definitions and data sources

  • 2 – Change in saving rate and positive versus negative changes of debt ratios

  • 3 – Consumption growth and positive versus negative changes of debt ratios

  • 4 – Change of saving rate and interaction effects of institutional settings

  • 5 – Consumption growth and interaction effects of institutional settings with change of debt ratios

  • 6 – Change of saving rate, consumer credit, and mortgages

  • 7 – Consumption growth, consumer credit, and mortgages

Issue 257