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The Macroeconomic Implications of Household Debt: An Empirical Analysis


  • Yun Kim

    () (Department of Economics, Trinity College)


Multi-equation econometric frameworks are used to investigate the impact of household debt on aggregate performance in US. In the vector autoregression analysis capturing the transitory feedback effects, we observe a bidirectional positive feedback process between aggregate income and debt. According to the estimation of vector error correction models, there are negative long-run relationships between household debt and output. The empirical model has also been extended to include investment and corporate debt. The results are in contrast with the results of empirical model without corporate sector variables. The negative long-run relationship between household debt and GDP ceases to exist as shown by the positive cointegrating coefficients in the cointegrating equations. Impulse response functions from these extended empirical models also indicate that investment may be an important channel through which household debt affects output.

Suggested Citation

  • Yun Kim, 2011. "The Macroeconomic Implications of Household Debt: An Empirical Analysis," Working Papers 1103, Trinity College, Department of Economics.
  • Handle: RePEc:tri:wpaper:1103

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    Cited by:

    1. Rahman, Sharezan & Masih, Mansur, 2014. "Increasing household debts and its relation to GDP, interest rate and house price: Malaysia’s perspective," MPRA Paper 62365, University Library of Munich, Germany.

    More about this item


    Household Debt; Financial Instability Hypothesis; Cointegration; VAR; VECM;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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