Household leveraging and deleveraging

Alejandro Justiniano, Giorgio E. Primiceri*, Andrea Tambalotti

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

74 Scopus citations


U.S. households' debt skyrocketed between 2000 and 2007, and has been falling since. This leveraging (and deleveraging) cycle cannot be accounted for by the relaxation, and subsequent tightening, of collateral requirements in mortgage markets observed during the same period. We base this conclusion on a quantitative dynamic general equilibrium model calibrated using macroeconomic aggregates and microeconomic data from the Survey of Consumer Finances. From the perspective of the model, the credit cycle is more likely due to factors that impacted house prices more directly, thus affecting the availability of credit through a change in collateral values. In either case, the macroeconomic consequences of leveraging and deleveraging are relatively minor, because the responses of borrowers and lenders roughly wash out in the aggregate. These results suggest that household debt overhang alone cannot account for the slow recovery from the Great Recession.

Original languageEnglish (US)
Pages (from-to)3-20
Number of pages18
JournalReview of Economic Dynamics
Issue number1
StatePublished - Jan 1 2015


  • Collateral constraint
  • Credit cycle
  • House prices
  • Mortgage debt

ASJC Scopus subject areas

  • Economics and Econometrics

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