The Real Effects Of Household Debt On Macroeconomic Performance

Financial leverage is recently a debated research topic.As an important research object,household debt has been receiving much attention by researchers and policy makers.During the last three decades,many economies around the world has witnessed a significant increase of household debt.For example,the ratio of household debt to GDP in emerging economies has risen from 9% in 1990 to 20% in 2017,while in advanced economies,this ratio has increased from 44% 1990 to 71% during the same period(IMF).Thus,it is vital to study the real effects of household debt on macroeconomic performance,especially output growth rate and consumption growth rate.Comparing to previous studies,this thesis expands the sample in terms of the quantity of economies and the duration of period,and takes into account the potential endogeneity problems.Using the panel of the relevant variables in 83 economies from 1990 to 2017,we estimate the real effects of household debt to output growth rate and consumption growth rate in the short-run and long-run dynamics separately.This thesis finds that in the long-run perspective,the rise of household debt is statistically and significantly correlated with the fall of output growth rate and consumption growth rate.However,in the short-run perspective,this effect is insignificant and uncertainty.Using the panel ARDL model to estimate the effect of household debt for each economy,this thesis reveals no statistically significant short-run dynamics between household debt and macroeconomic performance in most economies.By contrary,in few economies,this effect is either positive or negative.Specifically,these short-run dynamics are generally negative in advanced economies,compared to the positive effects in emerging economies.The revealed short-run dynamics between household debt and macroeconomic performance imply that the real effects of household debt may depend on the different institutions across the economies.Thus,policy makers shall consider the different economic institutions and economic policies to maximize the short-run benefits from the rise of household debt to macroeconomic performance,in order to compensate for economic losses in the long-run dynamics.Further studies could analyze which specific polices can be effectively enforced by the governments,especially in emerging economics,to alleviate the long-term negative effects of high levels of household debt.