EconPapers    
Economics at your fingertips  
 

The rise in US household debt: assessing its causes and sustainability

Sebastian Barnes () and Garry Young

Bank of England working papers from Bank of England

Abstract: In this paper the causes of the rise in US household debt since the early 1970s are considered, using a calibrated partial equilibrium overlapping generations model. The model explains indebtedness in terms of a consumption-income motive, associated with consumption smoothing, and a housing-finance motive. A credit constraint on borrowing by the old is also introduced to explain why they do not borrow to finance homeownership late in life. Shocks to real interest rates and income growth expectations, combined with demographic changes, are considered to explain the rise in US household debt. The calibrated model is found to be able to explain many features of US household borrowing, both in aggregate and cross-section. In particular, it predicts that the debt to income ratio would have increased substantially during the 1990s and would be expected to continue to grow in coming years. However, the model is unable to account for rising indebtedness during the 1980s when high interest rates, lower income growth and an ageing population would have tended to reduce aggregate borrowing. Alternative explanations, possibly associated with financial liberalisation, may account for borrowing growth during that period.

Date: 2003-11
New Economics Papers: this item is included in nep-his
References: Add references at CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.bankofengland.co.uk/archive/Documents/h ... apers/2003/wp206.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp206.pdf [301 Moved Permanently]--> https://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp206.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:206

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().

 
Page updated 2025-02-07
Handle: RePEc:boe:boeewp:206