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Macroeconomic implications of rising household debt

  • Guy Debelle

    (Reserve Bank of Australia)

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.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 153.

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Length: 46 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:bis:biswps:153
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  1. John Campbell & Joao F. Cocco, 2002. "Household Risk Management and Optimal Mortgage Choice," Computing in Economics and Finance 2002 47, Society for Computational Economics.
  2. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Berkeley Program on Housing and Urban Policy, Working Paper Series qt28d3s92s, Berkeley Program on Housing and Urban Policy.
  3. Burkhard Drees & Ceyla Pazarbasioglu, 1998. "The Nordic Banking Crisis: Pitfalls in Financial Liberalization: Pitfalls in Financial Liberalization," IMF Occasional Papers 161, International Monetary Fund.
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  5. Bajari, Patrick & Benkard, C. Lanier & Krainer, John, 2005. "House prices and consumer welfare," Journal of Urban Economics, Elsevier, vol. 58(3), pages 474-487, November.
  6. Sebastian Barnes & Garry Young, 2003. "The rise in US household debt: assessing its causes and sustainability," Bank of England working papers 206, Bank of England.
  7. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, December.
  8. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
  9. Luci Ellis, 2005. "Disinflation and the dynamics of mortgage debt," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 5-20 Bank for International Settlements.
  10. Allen Frankel & Jacob Gyntelberg & Kristian Kjeldsen & Mattias Persson, 2004. "The Danish mortgage market," BIS Quarterly Review, Bank for International Settlements, March.
  11. Berg, Lennart, 1994. "Household Savings and Debts: The Experience of the Nordic Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 42-53, Summer.
  12. Margaret M. McConnell & Richard Peach & Alex Al-Haschimi, 2003. "After the refinancing boom: will consumers scale back their spending?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Dec).
  13. Ana M. Aizcorbe & Arthur B. Kennickell & Kevin B. Moore, 2003. "Recent changes in U.S. family finances: evidence from the 1998 and 2001 Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-32.
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