CO-MOVEMENT OF STEADY-STATE GOVERNMENT DEBT AND HOUSEHOLD DEBT

Insook Lee ()
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Insook Lee: Beijing Normal University, 18 Jinfeng Road, Tangjiawan, Xiangzhou District, Zhuhai, Guangdong 519087, P. R. China

The Singapore Economic Review (SER), 2024, vol. 69, issue 07, 2295-2329

Abstract: To understand whether and how movements of government debt and household debt are related, stationary equilibrium government debt and household debt are characterized in a politico-economic model where office-seeking policymakers decide government debt and individual voters can borrow facing uninsurable idiosyncratic income shocks. An increase in uninsurable income risk unconditionally raises stationary equilibrium government debt and aggregate household debt together, while an increase in household-loan collateral value or population aging conditionally does so, entailing positive correlations between these two debts’ movements. In contrast, an increase in interest rate conditionally causes these two debts to move in the opposite directions.

Keywords: Government debt; household debt; co-movement; uninsurable income risk (search for similar items in EconPapers)
JEL-codes: D72 E62 H63 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590821500648

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