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Deleverage and Defaults in the United Kingdom

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  • Mario Lupoli

    (University of St. Andrews)

Abstract

This paper studies the effect of monetary policy on debt deleveraging in the United Kingdom, finding that households’ credit quality functions as a transmission channel for monetary policy. I use a VAR model to estimate the effect of monetary policy on household debt deleverage, measuring both the response of the overall debt stock and the number of individual insolvencies. This has implications for monetary policy rules targeting financial stability. I find that a monetary tightening produces defaults. A time-varying causality test confirms that causality goes from house prices to real debt and shows that the bank rate predicts insolvencies when it is high.

Suggested Citation

  • Mario Lupoli, 2022. "Deleverage and Defaults in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 18(5), pages 1-58, December.
    • Handle: RePEc:ijc:ijcjou:y:2022:q:5:a:2
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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