Abstract: Based on related theoretical analysis, we test the implications of credit booms and its interactions with lending standards on subsequent output growth in different non-financial sectors. The quantitative work is done by local projections approaches using a panel dataset of 26 economies. The main findings can be summarized as follows. First, both a household credit boom and a firm credit boom can damage the subsequent output growth. Second, a household credit boom tends to bring a more adverse macroeconomic effect on future output compared with a firm one. Third, lower lending standards can magnify macroeconomic fragility of a household credit boom. To further investigate the mechanism of above conclusions, we further evaluate marginal propensities to consume (MPCs) of lever heterogeneity household under both positive and negative income shocks, based on Bewley’s incompleteness market model and China Household Finance Survey (CHFS). The empirical results present that high level of household debt can reduce consumption, and highly-indebted households are vulnerable to negative income changes than positive ones.
Full text: Lending Standards, Credit Booming and Output Growth——From the Perspective of a Household Credit Boom
