The causes and consequences of high household indebtedness: evidence from Korea

Hwan-Koo Kang and Kyeongtae Lee

Chapter 4 in Research Handbook of Macroprudential Policy, 2026, pp 81-92 from Edward Elgar Publishing

Abstract: This chapter examines the causes and consequences of Korea's rapid household debt accumulation over the past two decades. It highlights how financial sector incentives, delayed adoption of borrower-based macroprudential tools, and prolonged low interest rates contributed to rising indebtedness. While risks to financial stability appear limited, elevated household debt may dampen long-term growth and exacerbate wealth inequality through credit misallocation and uneven asset accumulation. The chapter assesses policy responses – including borrower-based tools, sectoral capital buffers, and corporate loan securitization – and draws lessons relevant for other emerging markets developing macroprudential frameworks.

Keywords: Household debt; Macroprudential policy; Credit misallocation; Debt overhang; Korea (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035306206
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