Housing, Household Debt, and the Business Cycle An Application to China and Korea

A rise in household debt in the medium run produces a boom-bust pattern in economic activity, and the subsequent downturn after a large rise in household debt can be especially painful (e.g., Mian, Sufi and Verner (2017), Mian and Sufi (2018), Mian, Sufi and Verner (2020)). The original research showing this pattern focused on advanced economies from 1967 to 2012; however, subsequent research has shown the robustness of this pattern when expanding the sample to include a larger set of economies including emerging markets (Mian, Sufi and Verner (2018)). Furthermore, the severe recession in Brazil from 2014 to 2016 was also preceded by a large rise in household debt, and it followed many of the patterns shown in the earlier research (Garber, Mian, Ponticelli and Sufi (2019); Garber, Mian, Ponticelli and Sufi (2022)). Collectively, the boom-bust pattern associated with a rise in household debt has been referred to by Mian and Sufi (2018) as the “credit driven household demand channel.”