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The Effects of Household Debt on Consumption and Economic Growth (in Korean)

Author

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  • Jong Ku Kang

    (The Bank of Korea)

Abstract

This paper discusses the effects of household debt in the aspects of 'flow effect' arising in the course of changes in household debt size and 'stock effect' occurring due to the level of household loans, and then, empirically analyzes the effects using the Korean time series data and the OECD panel data. The result of empirical estimation with IV reveals that the flow effect of household debt facilitates consumption and economic growth while the stock effect hinders them. It is also found that the contribution of the flow effect on raising consumption and economic growth has decreased since 2000, however the contribution of the stock effect on impeding consumption and economic growth has expanded. The coefficients of flow effect and stock effect may change over time. Since the global financial crisis, the coefficient of flow effect has been scaled down, mainly because of the expansion of household mortgage loans that brought about a reduction in the share of household borrowing for consumption. The coefficient of stock effect has also decreased in size as the burden of household loan repayment was mitigated due to a fall in interest rates on household loans.

Suggested Citation

  • Jong Ku Kang, 2017. "The Effects of Household Debt on Consumption and Economic Growth (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 23(2), pages 28-57, June.
    • Handle: RePEc:bok:journl:v:23:y:2017:i:2:p:28-57
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    More about this item

    Keywords

    Household debt; Consumption; Economic growth;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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