Three essays on debt

• Main Author: Rostom, M.
• Published: University College London (University of London) 2018
• Subjects: 330
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.747755

The overall theme of this thesis pertains to agents' response, as a result of having debt, in the wake of the Great Recession. Two chapters focus on households-this has been my primary focus throughout my studies. The first paper examines the relationship between mortgage leverage and consumption around the 2008 financial crisis. Using survey data, we show that highly leveraged households made larger cuts to consumption following the financial crisis and that this was largely driven by younger households. Using a life-cycle framework, we investigate the channels by which highly leveraged households may have reduced consumption by more than others. The second paper examines the link between mortgage product availability and final consumer choice. We find that the average person shopping for a mortgage has over 90 mortgages to choose from (although most have similar total costs). Most make reasonable choices, however we find that about 7.5\% of households choose very expensive mortgages (relative to their income). The larger the pool of mortgages to choose from, the more likely that a household makes a very expensive choice. The final paper examines the impact of changes in the supply of credit from banks on firm productivity. We use firm level data around the global financial crisis and information on pre-existing lending relationships to isolate exogenous credit supply shocks. We find some evidence that contractions in bank's supply of credit are associated with reductions in labour productivity and wages.