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TERRA ECONOMICUS

Procyclicality of the private sector debt in the United Kingdom


TERRA ECONOMICUS, Vol. 24, No 1

Citation: Kalentarova J.D., Rozmainsky I.V., Solovyova A. (2026). Procyclicality of the private sectordebt in the United Kingdom. Terra Economicus 24(1), 133–153 (in Russian). DOI: 10.18522/2073-6606-2026-24-1-133-153


Paper analyzes the procyclicality of debt of the UK private economic agents, including non-financial andfinancial corporations, as well as households – for the period from 1987 to 2023. A theoretical explanation ofthis phenomenon can be found both in the conception of a financial accelerator and the financial instabilityhypothesis. To substantiate empirically the existence of the procyclicality of debt, we analyze data on six debtratios, GDP and the key interest rate, while using cointegration methods. The main result of the analysis is toconfirm the hypothesis of a positive relationship between GDP dynamics and debt levels, which indicates thesynchronicity of debt cycles and business cycles. At the same time, the debt ratios demonstrated a differentintensity of reaction to macroeconomic shocks. Financial corporations, due to their dependence on short-termrefinancing, have shown higher volatility compared to the non-financial sector. The phases of economic recoveryare accompanied by an active increase in borrowing, whereas during recessions, credit contraction exacerbatesrecessionary tendencies. The high rate of correction to equilibrium revealed in error correction models indicatesthe adaptability of the system. The significance of the study for Russia is that it allows us to formulate criteriafor analyzing the procyclicality of debt for the Russian economy and to justify a suitable set of monetary policymeasures for financial stabilization if such a procyclicality occurs. The article aims to fill a research gap, since bothin Russian-language and English-language literature debt procyclicality is a rare topic for empirical research.

Keywords: private sector debt; procyclical debt; business cycle; United Kingdom; cointegration
JEL codes: E12, E32, E44, E52


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Publisher: Southern Federal University
ISSN: 2073-6606