Research On The Effect Of Household Leverage On The Term Structure Of Interest Rates

The level and shape of the yield curve reflects investors' expectations about the future level of interest rates and the economic situation,which makes the term structure of interest rates a powerful tool at the heart of economic activity.Clarifying the mechanism of interest rate term structure formation and the factors influencing it can help people understand more clearly the correlation between various macro variables.With the rapid rise of household sector leverage in recent years,household sector debt has gradually become a macroeconomic problem that cannot be ignored,but the macroeconomic consequences of household leverage have not been explored in depth in existing studies.Therefore,this study focuses on the impact of household leverage on the term structure of interest rates,explores the channels and mechanisms of the impact of household leverage on the term structure of interest rates,and uses empirical analysis to confirm the existence of this impact.The mechanism analysis shows that changes in household leverage can affect the term structure of interest rates in three ways:credit constraints,risk attitudes,and economic expectations.An increase in household leverage reduces the overall level of the yield curve under the credit constraint channel,increases the level of short-term interest rates,decreases the level of long-term interest rates,and decreases the long-and short-term spreads under the risk attitude channel,and decreases the level of short-term interest rates,increases the level of long-term interest rates,and increases the long-and short-term spreads under the economic expectations channel.In the empirical analysis,a panel fixed effects model is used to regress the annual data of 43 countries and regions around the world for a total of 51 years from 1969 to 2020.The regression results show that household leverage has a significant impact on the term structure of interest rates,as an increase in household leverage decreases the level of short-term interest rates and long-term interest rates,while decreasing the long-and short-term spreads and flattening the yield curve.This paper also employs the instrumental variables approach to test the robustness of the regression results.Heterogeneity analysis is also conducted for the developed country subsample and the East Asian subsample.Finally,based on the findings of this paper,and taking into account the actual situation in China,this paper puts forward corresponding policy recommendations.