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Leaning Against The Credit Cycle

Natvik, Gisle James; Gelain, Paolo; Lansing, Kevin
Journal article, Peer reviewed
Accepted version
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URI
http://hdl.handle.net/11250/2582595
Date
2018
Metadata
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  • Publikasjoner fra CRIStin - BI [836]
  • Scientific articles [2147]
Original version
Journal of the European Economic Association. 2018, 16 (5), 1350-1393.   https://doi.org/10.1093/jeea/jvx043
Abstract
How should a central bank act to stabilize the ratio of debt over gross domestic product (GDP)? We show how the persistent nature of household debt shapes the answer to this question. In environments where households repay mortgages gradually, surprise interest hikes only weakly influence household debt, and tend to increase debt-to-GDP in the short run while reducing it in the medium run. Interest rate rules with a positive weight on debt-to-GDP cause indeterminacy. Compared to inflation targeting, debt-to-GDP stabilization calls for a more expansionary policy when debt-to-GDP is high, so as to deflate the debt burden through inflation and output growth.
Publisher
Oxford
Journal
Journal of the European Economic Association
Copyright
The authors retain rights to “upload their accepted manuscript PDF ("a post-print*") to institutional and/or centrally organized repositories, but must stipulate that public availability be delayed until 24 months after first online publication in the journal.

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