Transmission of Monetary Policy in Times of High Household Debt

53 Pages Posted: 29 Dec 2017

See all articles by Youngju Kim

Youngju Kim

Economic Research Institute, The Bank of Korea

Hyunjoon Lim

The Bank of Korea

Date Written: December 29, 2017


English Abstract: This paper explores whether the effectiveness of monetary policy can be affected by the degree of household indebtedness. We take an interacted panel VAR approach using a panel of 28 countries and thereby obtain several interesting findings. That is, the responses of consumption and investment to monetary shocks are stronger in the state of high household debts. Such responses furthermore become larger in a contractionary monetary policy stance rather than in an expansionary one. Finally, we find that the negative impact of contractionary monetary shocks on the real economy is stronger in the countries with a higher share of adjustable rate loans. We conjecture that these findings lend support for the presence of “cash flow channel” with respect to the transmission of contractionary monetary policy.

Korean Abstract: 본고는 28개국의 1984~2015년 중 국가패널자료를 대상으로 교차패널 VAR모형을 이용하여 통화정책의 유효성이 가계부채 수준에 의해 어떻게 영향을 받는지에 관한 분석을 시도하였다. 분석 결과, 통화정책 충격 발생 시 소비 및 고정투자가 가계부채가 높은 경우 더욱 크게 반응하는 것으로 나타났다. 더 나아가 그러한 반응의 크기는 확장적 통화정책 기조에서보다 긴축적 기조에서 더욱 두드러진 것으로 추정되었다. 아울러 긴축적 통화정책이 실물부문에 미치는 부정적 영향이 변동금리 대출 비중이 높은 국가에서 더욱 두드러진 것으로 분석되었다. 이러한 분석 결과에 비추어 볼 때, 긴축적 통화정책의 파급경로에서 “현금흐름 경로”(cash flow channel)가 작용하는 것으로 판단된다.

Keywords: Household debt, Monetary policy, Interacted panel VAR, Adjustable-rate loans

JEL Classification: E52, E62, R38

Suggested Citation

Kim, Youngju and Lim, Hyunjoon, Transmission of Monetary Policy in Times of High Household Debt (December 29, 2017). Bank of Korea WP 2017-35. Available at SSRN: or

Youngju Kim (Contact Author)

Economic Research Institute, The Bank of Korea ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Hyunjoon Lim

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

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