The impact of interest rates on household debt accumulation in Malaysia: a structural break analysis

Hafizah Hammad Ahmad Khan, Hussin Abdullah and Shamzaeffa Samsudin

International Journal of Economics and Business Research, 2020, vol. 19, issue 2, 193-202

Abstract: This study aims to investigate the long run impact of the cost of borrowing on the household debt in Malaysia in order to determine whether the interest rate targeting method could provide solutions to control high debt accumulation. By using the autoregressive distributed lag (ARDL) model with structural break, findings of this study suggest that, although the cost of borrowing has a negative impact on household debt, the effect is relatively low compared to the income level, housing markets and demographic effects on the debt accumulation. As a result, the low interest rate policy adopted by the country since the Asian Financial Crisis is not the basis that brings towards the bulk of household debt in the country and thereby the interest rate targeting method is not the effective mechanism to control the high debt level.

Keywords: household debt; interest rate; life cycle model; structural break; unit root; Quandt-Andrews breakpoint test; autoregressive distributed lag; ARDL; Malaysia. (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:19:y:2020:i:2:p:193-202

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