Has the Rise in Debt Made Households More Vulnerable?

Posted: 1 Jun 2010

See all articles by Nathalie Girouard

Nathalie Girouard

affiliation not provided to SSRN

Mike Kennedy

affiliation not provided to SSRN

Christophe Andre

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: January 3, 2007

Abstract

This paper reviews, for a number of OECD economies, macroeconomic developments in household balance sheets over the past two decades. The main findings show that the rise in household debt to historical levels has been driven by a combination of favourable financial conditions and buoyant housing markets. There have also been a number of supply-side innovations in credit markets that have eased the access to credit for lower-income borrowers and reduced financial constraints for first-time homebuyers. Total household net wealth has risen and provided households with a financial cushion against a negative shock. That said, households in a number of countries have leveraged balance sheets and the sensitivity to house price and interest rate developments has likely increased. The paper then examines micro-level information which suggests that most of the debt is held by households better able to manage it. In particular, the major part of debt is held by higher-income households, who also spend a smaller proportion of their disposable income servicing debts. Lower-income households, with less ability to service debt, do not hold that much and, as such, the spill-over effects from this group to the rest of the economy are perhaps not large. Whether the situation remains benign or not is discussed in the final section of the paper. Estimates presented point to significant effects of changes in net wealth on household saving rates in a large number of the countries studied.

Keywords: household debt, household assets, housing market

JEL Classification: D1, E21

Suggested Citation

Girouard, Nathalie and Kennedy, Mike and Andre, Christophe, Has the Rise in Debt Made Households More Vulnerable? (January 3, 2007). Available at SSRN: https://ssrn.com/abstract=1618214

Nathalie Girouard

affiliation not provided to SSRN ( email )

Mike Kennedy

affiliation not provided to SSRN ( email )

Christophe Andre (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

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