Household Debt in SEACEN Economies
Maria Teresa Punzi
in Research Studies from South East Asian Central Banks (SEACEN) Research and Training Centre
Since the great financial crisis (GFC), household debt has attracted considerable attention. Even though policy authorities have gradually introduced specific macroprudential interventions to reduce risks associated with increasing levels of household debt, borrowing by households is still growing worldwide, and it is now at very high levels in many SEACEN economies. Increasing household debt across economies heightens possible threats to growth and global financial stability. From the perspective of SEACEN economies, the increase in the household debt-to-GDP ratio pose a challenge to monetary, fiscal, regulatory and macroprudential policies: - Increasing household debt is very often associated with the run-up in house prices. - Across SEACEN economies, productivity and house preference shocks are the main drivers of a contemporaneous increase in household debt and house prices. Also, an increase in income class, i.e., larger share of top and middle-income classes, boosts house prices and household debt. Increasing household debt is also driven by accommodative monetary policy and by a slowdown in the construction sector. - A strong macro-financial linkage appears to be present across SEACEN economies and empirical analysis finds that asset prices usually increase and peak before a GDP downturn (i.e., recession), while peaks in the household debt-to-GDP ratio coincide with GDP downturns. This suggests that asset prices and household debt-to-GDP ratios are key variables for predicting a recession. - Downturn phases of asset price increase the probability of recession across SEACEN economies. - In this context, macroprudential policies have been used very frequently in SEACEN economies in order to lean against excess growth of household debt. However, such policies work mainly on the supply side of credit, while the increase in the levels of household debt depends mostly on demand channels.
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