1qGLG9p

It is widely accepted that high levels of debt (of various forms) have played
a central role in the 2008-09 global financial crisis, the 2010-12 euro crisis
and many previous crisis episodes. The adverse macroeconomic impact of
deleveraging also helps to explain the slow pace of recovery among the
advanced economies in recent years, while the post-2009 surge in debt
accumulation in a number of emerging markets (especially China) raises the
prospect of a new wave of debt-related crises unless corrective policies are
implemented.
This report provides a multi-dimensional perspective on leverage for both
advanced and emerging economies. The report’s comprehensive approach
includes both public and private debt, with the latter broken down on
sectoral lines (households, non-financial corporates, financial sector). It
emphasises the macroeconomic impact of leverage, with a sharp distinction
between ‘normal’ recessions and the long-lasting impact on output
generated by excessive leverage and financial crises.
ISBN: 978-1-907142-79-6
The report shows that the world has not yet begun to de-lever and global
debt ratios are breaking new highs. At the same time, in a poisonous
combination, world underlying growth and inflation are also lower than
previously expected, reducing global debt capacity.
The authors argue that central banks in advanced economies should be slow
to raise interest rates, given the fragile deleveraging process. Moreover, the
European Central Bank should pursue an aggressive policy of quantitative
easing in order to fulfill its mandate of price stability while fostering debt
stabilisation and easing credit conditions.
However, successful exit from a leverage trap also includes appropriate fiscal
and macro-prudential policies, together with the restructuring of privatesector
(bank, household, corporate) debt and sovereign debt where
required. Furthermore, given the risks and costs associated with excessive
leverage, the authors argue that more needs to be done to improve
resilience to debt shocks and discourage excessive debt accumulation.
Centre for Economic Policy Research
3rd Floor • 77 Bastwick Street • LONDON EC1V 3PZ • UK
TEL: +44 (0)20 7183 8801 • FAX: +44 (0)20 7183 8820 • EMAIL: cepr@cepr.org
www.cepr.org
ISBN 978-1-907142-79-6
9 781907 142796