In the short term, an increase in the ratio of household debt is likely to boost economic growth and employment, our study finds.
That's all fine in theory.
The IMF has released analytical sections for October 2017 issue of global Financial Stability Report, prepared twice a year.
But down under, household debt has increased to represent 100 percent of Australia's GDP and with stagnant wage growth and a soaring housing market in Sydney and Melbourne.
The bleak mood was stoked by the steady flow of warnings about household debt, including from the Reserve Bank board on Tuesday.
The IMF said: " Given the widespread misery the crisis caused, you might think people have become skittish about borrowing more.
Government 10-year yields lost 3.9 points to 2.802 per cent. These effects are stronger at the higher levels of debt typical of advanced economies and weaker at lower levels prevailing in emerging markets. Among advanced economies, the median debt ratio rose to 63 percent past year from 52 percent in 2008.
What's the reason for the trade-off? But later, highly indebted households may need to cut back on spending to repay their loans.
This IMF paper is written by central bank policy makers, and central bank policy around the world in the decade since the global financial crisis has centred on historically low interest rates and quantitative easing, both policies which push borrowing costs down, and debt levels up.
The paper concluded "More specifically, our study found that a 5 percentage-point increase in the ratio of household debt to GDP over a three-year period forecasts a 1.25 percentage-point decline in inflation-adjusted growth three years in the future". Higher debt is associated with significantly higher unemployment up to four years ahead. And a 1 percentage point increase in debt raises the odds of a future banking crisis by about 1 percentage point.