Research On Household Leverage Ratio And Its Macroeconomic Fluctuation Effects

For a long time,in the research of debt problems,people always pay more attention to the total leverage level of the economy,or to the enterprise or government sector.However,the debt problem of the household sector could not attract enough attention as an independent research object.The outbreak of the 2008 crisis in the USA let people begin to realize that the household debt may also cause a huge shock to the macroeconomic,and its negative impacts on the real economy and financial system is no less than that of the government and enterprise sectors.In the past years,the debt and leverage ratio of China's household sector continued to rise rapidly,which have attracted people's attention.Early in the year 2020,China Banking and Insurance Regulatory Commission clearly pointed out that it is necessary to "prevent illegal funds flowing into the real estate market and curb the excessive growth of household leverage ratio".China's household debt issue can not be ignored any more.From the perspective of sector economy,the leverage ratio of household in the world is generally lower than that of enterprises and government sector.However,because of the prosperity of the real estate industry and the improvement of the personal credit market,the rapid accumulation of household debt makes its relative growth rates in China having exceeded that of the enterprise sector.The close relationship between the economic structure and the real estate market also make the debt risk being concentrated tawards the household sector.At the same time,China is facing big changes and chanllanges today.In May 2020,President Xi Jinping put forward "the Double Circulation Issue",which makes it clear that in the future,China's economic development needs to rely more on the potential of domestic demand and consumption.Therefore,this paper takes the leverage ratio of the household sector as an independent research object,focusing on its macroeconomic fluctuation effects.Based on the analysis of the driving factors of household debt,this paper attempts to accurately describe the total change and structural characteristics of household leverage ratio through the comparison and selection of commonly used indicators.Next,from the perspective of the changing of household debt motivation,this paper theoretically discusses the positive and negative aspects of household debt behavior on macroeconomic fluctuations.Then,this paper takes empirical tests on the cross-border data and domestic provincial data respectively.There are seven chapters.In addition to the first chapter,the second chapter reviews the theories and literature research progress.Compared with corporate debt and government debt,there are relatively less literature on household debt.The research results mainly focus on the causes of household debt,household debt and consumption theory,household debt and economic operation,etc.In the fields of the impacts of household debt on economic operation,most of the existing researches focus on two parts: one is the impacts on economic growth,and the other is the relationship between household debt,economic fluctuation and financial stability.The research on the relationship between household debt and household consumption and its macroeconomic effects is relatively scattered,lacking a relatively comprehensive and systematic analysis.Generally speaking,in the existing theoretical studies,the hypothesis should be closer to the reality.In the empirical studies,the indicators are not unified.What's more,the existing researches paid more attention to economic growth and the negative effects of household debt,but less on its own consumption smoothing effect and its channel analysis on macroeconomic fluctuation.Also in terms of research objects,most of the studies are based on developed economies such as the United States and Europe,and pay less attention to other countries such as emerging markets.This paper tries to do some job on the above aspects.Chapter three mainly studies the leverage ratio indicators and its changing characteristics.First,I make a comparative study on the common used indicators on measuring household leverage ratio and choose a best one.And then,I describe China's household leverage ratio from 1980 to 2017 through data backtracking.I divide the past years into four stages: low operating(1980-1997),stable rising(1997-2004),growth declining(2004-2008)and accelerated increaseing(2008-present).Although the existing statistics show that the leverage ratio has increased greatly,there are still some reasons to cause an underestimation for China.Further,this chapter analyzes the structural characteristics of the leverage ratio.It is not difficult to find that since the beginning of the 21 st century,with the development and prosperity of the housing market,the proportion of consumer loans in residential loans has increased significantly.Before that,the loans of the residential sector were mainly business loans;with the rapid rise of the total leverage ratio,the proportion of consumer loans in residential loans increased significantly.The leverage ratio of the private sector is more and more close to housing loans.The vast majority of consumer loans are housing loans,which account for more than 60%.People may borrow money from private lending market,while the total amount is lower than that from banks.From a horizontal perspective,the global household leverage ratio is generally rising.China stays at the middle level among countries but has large growth rates.In the fourth chapter,I construct a DSGE model with heterogeneous households and credit constraints.The results show that: for indebted households,the increase of leverage will bring a short-term wealth effect;but in long term,it will reduce consumption.Household debt has the characteristic of moderate scale,since the magnification effect of household leverage on consumption fluctuation increases marginally.The higher the leverage ratio is,the more obvious the magnification effect on consumption and economic fluctuation through household balance sheet effect will be.The illegal entry of credit funds into the real estate market will aggravate economic fluctuations,distort the economic structure and cause the loss of family wealth.In the fifth chapter,I construct a panel data regression on 43 countries from 1980 to 2017,adopting the two-stage GMM estimation method which can effectively overcome the endogenous problems.The results show that: there is a positive U-shaped curve relationship between the household leverage ratio and the economic fluctuation,which verifies that the leverage ratio has a nonlinear stabilizing effect on the economic fluctuation.When it reaches a certain level,its marginal effect on economic fluctuation will turn.The mechanism of this nonlinear stabilization effect is through the household consumption.Under this mechanism,the double effects are more obvious and deeper when the economy fluctuates in a negative direction.Increasing the leverage ratio has a more obvious stabilizing effect on the economy for the countries at the initial or early stage of financial development.In the sixth chapter,I analysis the reverse movement facts between the leverage ratio and the macroeconomic fluctuation ranges since 1980,and also explain the double effects in different stages in the past 40 years in China.And then,the empirical test of China's provincial panel data from 2003 to 2018 shows that there is a negative correlation between household leverage ratio and economic fluctuation in China.The moderating effect of household leverage on economic fluctuations is more obvious in the east region than in middle and west region.The negative effects on consumption is more obvious in the west than in the middle and the east.This phenomenon is mainly determined by regional income level differences.Based on this,the more effective way to boost consumption in China is to improve people's income level.The significance of leverage management for household sector is to adjust the leverage structure and to meet the existing and effective consumption demand.At the same time,we should keep an eye on the coming of the turning point of household leverage ratio.The last chapter summarizes the research conclusions,and puts forward the relevant policies suggestions for China.There are five main conclusions.First,since 1980,China's household leverage ratio has increased rapidly and experienced four different stages,also it has close relationship to the real estate market.Second,from the micro individual level,the increase of debt leverage mainly consisting of housing credits may bring short-term wealth effect to debt households,but then will squeeze out consumption more persistently.Thirdly,at the macro level,household leverage has double effects on economic fluctuation,which are consumption smoothing effect and the balance sheet effect.The debt motivation determines how it works.Fourth,from the perspective of stabilizing economy,the moderation of household leverage ratio has been demonstrated in both theoretical and empirical tests.Finally,since 1980,we have a reverse movement in China between household leverage and economic fluctuations most of the time.However,we should be alert to the turning point's coming.There are four main innovations of this study.First,through the construction of DSGE model,this paper gives a theoretical description of the conclusion that the increase of household debt has a wealth effect in short term and a crowding out effect on consumption in a longer time.Second,from the goal of economic stability,this paper finds the nonlinear relationship between the increase of household leverage ratio and the amplification effect of consumption and economic fluctuation,and proves theoretically that household leverage has the characteristics of moderate scale.Third,from the perspective of household debt motivation at the micro level,this paper distinguishes different effects and transmission channels on economic fluctuations,and then concludes that household leverage has double effects on economic fluctuation.Also empirical evidences are found in this study.Fourth,through the collation and backtracking of historical data,I find the characteristics of reverse movement between household leverage and economic fluctuation in China,which can help for judging the moderation of current level in China.