Macroeconomic effects of household debt: an empirical analysis

Multi-equation econometric frameworks are used to investigate the impact of household debt on GDP in the US. In the vector autoregression analysis capturing the transitory feedback effects, we observe a bidirectional positive feedback process between aggregate income and debt. According to the estimation of vector error correction models, there are negative long-run relationships between household debt and output. These empirical results provide a support for the view of the debt-driven business cycles.