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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
By Andrew Large