Private Sector Deleveraging and Growth Following Busts

Balance sheet recessions have been a drag on activity after the Global Financial Crisis,underscoring the important role of balance sheet adjustment for resuming sustainedgrowth. In this paper we examine private sector deleveraging experiences across 36advanced and emerging economies countries since 1960. We consider the commonfeatures and divergent experiences of deleveraging episodes across countries, and analyzeempirically the impact of different aspects of deleveraging during the bust phase ofleverage cycles on subsequent medium-term growth. The results suggest that larger andquicker unwinding of non-financial sector debt overhangs is associated with sizablemedium-term output gains, and that policies should focus on facilitating up-front balancesheet adjustment.