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The determinants of unsecured borrowing: evidence from the British household panel survey

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  • Ana del Río

    ()
    (Banco de España)

  • Garry Young

    ()
    (Bank of England)

Abstract

Household indebtedness has risen sharply in recent years, with large increases in both secured and unsecured borrowing. In this paper, waves 5 and 10 of the British Household Panel Survey (BHPS) for 1995 and 2000 are used to examine the determinants of participation in the unsecured debt market and the amount borrowed. Probit models for participation are estimated and age, income, positive financial prospects and housing tenure are found to be very significant and have the expected sign according to a life cycle model for consumption. Regressions to explain the level of borrowing by individuals suggest that income is the main variable explaining cross sectional differences in unsecured debts. The increase in aggregate unsecured debt between 1995 and 2000 does not seem to be closely linked to changes in the determinants of debt market participation and has been mainly associated with the larger amounts borrowed by those with debts. Increases in income, better educational qualifications and improved prospects regarding the financial situation contributed to this result. The major part of the overall increase in unsecured debt is not explained by variables at the individual level, but is accounted for by common, unmodelled macroeconomic factors.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0511e.pdf
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0511.

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Length: 43 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:bde:wpaper:0511

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Keywords: unsecured debt; british household panel survey;

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References

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  1. Fabio Canova & Matteo Ciccarelli & Eva Ortega, 2004. "Similarities and convergence in G-7 cycles," Banco de Espa�a Working Papers, Banco de Espa�a 0404, Banco de Espa�a.
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  5. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2005. "Dual employment protection legislation: a framework for analysis," Banco de Espa�a Working Papers, Banco de Espa�a 0510, Banco de Espa�a.
  6. Máximo Camacho & Gabriel Pérez-Quirós, 2005. "Jump-and-rest effect of U.S. business cycles," Banco de Espa�a Working Papers, Banco de Espa�a 0507, Banco de Espa�a.
  7. Berben, Robert-Paul & Locarno, Alberto & Morgan, Julian & Vallés, Javier, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series, European Central Bank 0400, European Central Bank.
  8. Bayoumi, Tamim A, 1993. "Financial Deregulation and Consumption in the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 536-39, August.
  9. David B. Gross & Nicholas S. Souleles, 2001. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," NBER Working Papers 8314, National Bureau of Economic Research, Inc.
  10. Ana Buisán & Juan Carlos Caballero & José Manuel Campa & Noelia Jiménez, 2004. "La importancia de la histéresis en las exportaciones de manufacturas de los países de la UEM," Monetaria, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 169-222, abril-jun.
  11. Davies, A J & Weber, G, 1991. "Credit and British consumers: some micro evidence," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 12(2), pages 61-84, May.
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  13. Ana del Río & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Banco de Espa�a Working Papers, Banco de Espa�a 0512, Banco de Espa�a.
  14. Andrés, Javier & López-Salido, J David & Nelson, Edward, 2004. "Tobin's Imperfect Asset Substitution in Optimizing General Equilibrium," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4336, C.E.P.R. Discussion Papers.
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Cited by:
  1. L. J. �lvarez & E. Dhyne & M. Hoeberichts & C. Kwapil & H. Le Bihan & P. L�nnemann & F. Martins & R. Sabbatini & H. Stahl & P. Vermeulen & J. Vilmunen, 2005. "Sticky Prices in the Euro Area: a Summary of New Micro Evidence," DNB Working Papers, Netherlands Central Bank, Research Department 062, Netherlands Central Bank, Research Department.
  2. Adela Luque, 2005. "Skill mix and technology in Spain: evidence from firm level data," Banco de Espa�a Working Papers, Banco de Espa�a 0513, Banco de Espa�a.
  3. repec:etr:series:v:3:y:2012:i:11:p:341-350 is not listed on IDEAS
  4. Thorvardur Tjörvi Ólafsson & Karen Á. Vignisdóttir, 2012. "Households’ position in the financial crisis in Iceland. Analysis based on a nationwide household-level database," Economics, Department of Economics, Central bank of Iceland wp59, Department of Economics, Central bank of Iceland.
  5. Ottaviani, Cristina & Vandone, Daniela, 2011. "Impulsivity and household indebtedness: Evidence from real life," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(5), pages 754-761.
  6. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," SOEPpapers on Multidisciplinary Panel Data Research 239, DIW Berlin, The German Socio-Economic Panel (SOEP).
  7. M.A. Akudugu, 2011. "Rural banks' financial capital and livelihoods development of women farmers in Ghana," Journal of Enterprising Communities: People and Places in the Global Economy, Emerald Group Publishing, Emerald Group Publishing, vol. 5(2), pages 248-264, September.
  8. Ke Chen Chen & Mali Chivakul, 2008. "What Drives Household Borrowing and Credit Constraints? Evidence From Bosnia and Herzegovina," IMF Working Papers 08/202, International Monetary Fund.
  9. Chen, Nan-Kuang & Chen, Shiu-Sheng & Chou, Yu-Hsi, 2010. "House prices, collateral constraint, and the asymmetric effect on consumption," Journal of Housing Economics, Elsevier, Elsevier, vol. 19(1), pages 26-37, March.
  10. Lobna ABID & Zouari Dorra & Zouari Ghorbel Sonia, 2012. "Household indebtedness in Tunisia," E3 Journal of Business Management and Economics., E3 Journals, E3 Journals, vol. 3(10), pages 341-350.
  11. Herrala, Risto & Kauko, Karlo, 2007. "Household loan loss risk in Finland – estimations and simulations with micro data," Research Discussion Papers, Bank of Finland 5/2007, Bank of Finland.
  12. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0150, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  13. repec:eme:jecpps:v:5:y:2011:i:4:p:248-264 is not listed on IDEAS

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