Household Leverage and the Recession

Callum Jones, Virgiliu Midrigan, Thomas Philippon

    Research output: Contribution to journalArticlepeer-review


    We evaluate and partially challenge the household leverage view of the Great Recession. In the data, employment and consumption declined more in U.S. states where household debt declined more. We study a model of a monetary union composed of many regions in which liquidity constraints shape the response of employment and consumption to changes in debt. We estimate the model with Bayesian methods combining state and aggregate data. Changes in household credit explain 40% of the differential rise and fall of employment across states, but a small fraction of the aggregate employment decline in 2007–2010. Nevertheless, since household deleveraging was gradual, credit shocks greatly slowed the recovery.

    Original languageEnglish (US)
    Pages (from-to)2471-2505
    Number of pages35
    Issue number5
    StatePublished - Sep 2022


    • Great Recession
    • household debt
    • regional evidence
    • zero lower bound

    ASJC Scopus subject areas

    • Economics and Econometrics


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