Economies with hefty household debt loads tend to suffer longer, deeper, recessions says new research from the International Monetary Fund.

In a new report, the IMF says its analysis of advanced economies over the past 30 years finds that housing busts and recessions that are preceded by larger run-ups in household debt “tend to be more severe and protracted”, due to the combination of dropping house prices and the large resulting debt overhang.

“Household consumption and real GDP fall more, unemployment rises more, household deleveraging— paying off debts or defaulting on them—is more pronounced, and the slump persists for at least five years,” it says. And, it finds the larger contractions in economic activity in the wake of such busts aren’t just due to the fall in house prices, or resulting banking crises. “Rather, it is the combination of house price declines and the prebust run-up in leverage that explains the severity of the contraction,” it concludes.

The report also finds that government policy can do a lot to minimize these effects. While macroeconomic policies — such as unemployment insurance, monetary easing, and bank bailouts — are crucial in preventing excessive contractions in economic activity, these sorts of policies have their limits. Interest rates can only go so low, and government debt can limit fiscal transfers.

However, the IMF says that it has found that targeted household debt restructuring policies can deliver significant benefits. “Bold and comprehensive programs, such as those implemented in the United States in the 1930s and in Iceland today, can significantly reduce the number of household defaults and foreclosures and substantially reduce debt repayment burdens, at a relatively low fiscal cost,” it says.

By enacting policies to reduce defaults and foreclosures, governments can prevent self-reinforcing cycles of declining house prices and lower aggregate demand, it says. However, it also stresses that the success of such programs depends on their design. Overly restrictive policies can limit the programs’ effectiveness, whereas programs that are to broad can undermine the health of the financial sector.