Macroeconomic Implications of Rising Household Debt

46 Pages Posted: 20 Sep 2007

Date Written: June 2004


Household borrowing has grown considerably in many countries over the past two decades, both in absolute terms and relative to household incomes. Much of the increase can be viewed as a rational response by households to the effects of easing liquidity constraints on households, and lower inflation and borrowing rates. Regardless of whether the increase in debt is sustainable, it has important macroeconomic implications. The household sector will be more sensitive to shocks to interest rates and household incomes, and consumption spending will be more sensitive to changes in expectations of future income. The increased sensitivity will depend crucially on the distribution of debt across the household sector.

Keywords: household debt, monetary policy

JEL Classification: E44, E21, E40

Suggested Citation

Debelle, Guy, Macroeconomic Implications of Rising Household Debt (June 2004). BIS Working Paper No. 153, Available at SSRN: or

Guy Debelle (Contact Author)

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000

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