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How much income is used for debt payments? A new database for debt service ratios

Author

Listed:
  • Mathias Drehmann
  • Anamaria Illes
  • Mikael Juselius
  • Marjorie Santos

Abstract

Important information on the interactions between debt and the real economy can be derived from debt service ratios (DSRs), ie the ratio of principal and interest payments to income. The BIS has accordingly released estimated aggregate DSR data for the total private non-financial sector for 32 countries from 1999 onwards. The methodology and key concepts are presented by Mathias Drehmann, Anamaria Illes, Marjorie Santos (BIS) and Mikael Juselius (Bank of Finland). For most countries, DSRs are available for both the household sector and the non-financial corporate sector. This article shows that estimated DSRs can meaningfully portray the movement of debt burdens over time, even though they are extracted from a relatively sparse set of aggregate data. A brief look at the evolution of DSRs in recent years shows that they allow a more comprehensive assessment of credit burdens than the credit-to-income ratio or simple measures of interest payments relative to income, because they take both interest payments and amortisation into account.

Suggested Citation

  • Mathias Drehmann & Anamaria Illes & Mikael Juselius & Marjorie Santos, 2015. "How much income is used for debt payments? A new database for debt service ratios," BIS Quarterly Review, Bank for International Settlements, September.
  • Handle: RePEc:bis:bisqtr:1509h
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    References listed on IDEAS

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    1. Karen E. Dynan & Kathleen W. Johnson & Karen M. Pence, 2003. "Recent changes to a measure of U.S. household debt service," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 417-426.
    2. Christian Dembiermont & Mathias Drehmann & Siriporn Muksakunratana, 2013. "How much does the private sector really borrow - a new database for total credit to the private non-financial sector," BIS Quarterly Review, Bank for International Settlements, March.
    3. Mathias Drehmann & Mikael Juselius, 2012. "Do debt service costs affect macroeconomic and financial stability?," BIS Quarterly Review, Bank for International Settlements, September.
    4. Kathleen W. Johnson & Geng Li, 2010. "The Debt-Payment-to-Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1373-1390, October.
    5. Alessi, Lucia & Antunes, Antonio & Babecky, Jan & Baltussen, Simon & Behn, Markus & Bonfim, Diana & Bush, Oliver & Detken, Carsten & Frost, Jon & Guimaraes, Rodrigo & Havranek, Tomas & Joy, Mark & Kau, 2015. "Comparing different early warning systems: Results from a horse race competition among members of the Macro-prudential Research Network," MPRA Paper 62194, University Library of Munich, Germany.
    6. Umar Faruqui, 2008. "Indebtedness and the Household Financial Health: An Examination of the Canadian Debt Service Ratio Distribution," Staff Working Papers 08-46, Bank of Canada.
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    Citations

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    Cited by:

    1. Mikael Juselius & Claudio Borio & Piti Disyatat & Mathias Drehmann, 2017. "Monetary Policy, the Financial Cycle, and Ultra-Low Interest Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 13(3), pages 55-89, September.
    2. Mathias Drehmann & Mikael Juselius & Anton Korinek, 2018. "Going With the Flows: New Borrowing, Debt Service and the Transmission of Credit Booms," NBER Working Papers 24549, National Bureau of Economic Research, Inc.
    3. Soyoung Kim & Aaron Mehrotra, 2015. "Managing price and financial stability objectives - what can we learn from the Asia-Pacific region?," BIS Working Papers 533, Bank for International Settlements.
    4. Juselius, Mikael & Drehmann, Mathias, 2016. "Leverage dynamics and the burden of debt," Research Discussion Papers 3/2016, Bank of Finland.
    5. repec:bis:bisqtr:1712f is not listed on IDEAS
    6. Daisy J. Pacheco-Bernal & Santiago D. Segovia-Baquero & Ana M. Yaruro-Jaime, 2017. "Vulnerabilidades financieras de los hogares en Colombia," Borradores de Economia 1026, Banco de la Republica de Colombia.
    7. Correa, Ricardo & Garud, Keshav & Londono, Juan M. & Mislang, Nathan, 2017. "Sentiment in Central Banks' Financial Stability Reports," International Finance Discussion Papers 1203, Board of Governors of the Federal Reserve System (U.S.).
    8. repec:bis:bisqtr:1712e is not listed on IDEAS
    9. Mathias Drehmann & Mikael Juselius & Anton Korinek, 2017. "Accounting for debt service: the painful legacy of credit booms," BIS Working Papers 645, Bank for International Settlements.

    More about this item

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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