A Global House of Debt Effect? Mortgages and Post-crisis Recessions in Fifty Economies

Abstract

The composition of private debt matters to the severity of post-2007 recessions. Using new data on four types of bank credit over 2000-2012 for 51 economies in OLS and Bayesian averaging models, we find that changes in the share of household mortgage credit in total credit before the crisis are significantly associated with recession depth and growth loss after the 2007 crisis. This finding is robust to a wide range of control variables and to the different responses across advanced and emerging economies. The evidence also suggests that mortgage growth combined with increasing bank leverage was particularly damaging to output growth. We discuss policy implications and future research.