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Household leverage and consumption during the Great Depression

Kim Abildgren (Danmarks Nationalbank, Kobenhavn, Denmark)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 14 May 2018




The purpose of this study is to explore the impact of household leverage on consumption in Denmark during the Great Depression in the 1930s.


A range of consumption functions are estimated on the basis of household-level data from the Expenditure and Saving Survey of 1931.


The estimations show significant negative marginal effects of various measures of leverage on homeowners’ non-durable consumption. The magnitude of the estimated effects suggests that leverage contributed significantly to the economic downturn during the Great Depression by depressing consumer spending of homeowners.

Practical implications

Gross debt levels of homeowners are not only of direct importance for financial stability but also have implications for macroeconomic stability, which again might affect the stability of the financial system. These findings seem to be in line with the focus on household leverage in the macroprudential oversight performed by regulators and central banks in many countries.


This paper is the first study of the leverage channel in the private consumption function using household micro data from the Great Depression.



The author wishes to thank the reviewers for useful comments on a preliminary version of this article. Views and conclusions expressed in this article are those of the author and do not necessarily represent those of Danmarks Nationalbank. The author alone is responsible for any remaining errors.


Abildgren, K. (2018), "Household leverage and consumption during the Great Depression", Journal of Financial Regulation and Compliance, Vol. 26 No. 2, pp. 287-299.



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