Household debt, financialization, and macroeconomic performance in the United States, 1951-2009

We empirically examine the relationship between U.S. output and household debt. To account for structural change due to financial liberalization, we divide the sample at the fourth quarter of 1982. We find structural differences between earlier and later business cycles for the U.S. household sector and its relation to the macroeconomy. In the regression analysis for pre-1982, we find no evidence that household debt variables had any negative effect on output. However, we find some evidence that household debt variables have negative effects on output for the post-1982 period. A formal structural break test shows evidence of a structural change in the relationship of U.S. output to household debt. Unit root tests for the separate samples show that none of the household variables possesses a unit root in the earlier period, yet all of them do in the late period, indicating fundamental differences between earlier and later periods in terms of the data-generating process.