Transmission of sectoral debt shocks in OECD countries: Evidence from the income channel

Georgios Magkonis and Anastasia Theofilakou

No 2019-02, Working Papers in Economics & Finance from University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group

Abstract: We examine the propagation of debt shocks across sectors of the economy for OECD countries. Our focus lies on assessing the importance of the income channel as a main transmission mechanism of such shocks. Employing a Bayesian Panel VAR, we find strong debt contagion effects across sectors, which work through the income channel. Higher non-financial corporate debt drives down household incomes, increasing pressures for household deleveraging. By contrast, an increase in household debt boosts real incomes and domestic demand, and results in higher corporate leverage. Finally, we find that growth effects of sectoral debt shocks are conditional on country idiosyncrasies.

Keywords: Macroeconomic shocks; sectoral debt; panel BVAR (search for similar items in EconPapers)
JEL-codes: C11 E60 H30 (search for similar items in EconPapers)
Pages: 32
Date: 2019-01-09
New Economics Papers: this item is included in nep-eec and nep-mac
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