Edited by Giuseppe Eusepi and Richard E. Wagner
Chapter 8: Adjustments in the balance sheets: is it normal, this ‘new normal’?
The chapter investigates the potential impact of overall debt and sectoral indebtedness (i.e. households, non-financial corporations, government, private and external) on economic growth. To this end, two quantitative approaches are employed. First, a multivariate panel logit model with fixed effects is used to assess the response of the recession probability to various threshold values of debt across several emerging European economies. Secondly, an asset pricing model is also applied in order to cross-check the regression results. The study takes a macroprudential perspective, by looking for solutions to reach the intermediate macroprudential objective of preventing excessive indebtedness. One important conclusion the results bring forward is that ‘one size fits all’ type of measures or thresholds might not be the optimal solution, as countries can bear various debt levels. Similarly, the different sectors investigated in this chapter proved to have a contrasting resilience to different debt values.
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