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The drivers of household indebtedness re-considered: an empirical evaluation of competing macroeconomic arguments on the determinants of household indebtedness in OECD countries

Author

Listed:
  • Glenn Lauren Moore

    (Department of Economics, SOAS University of London)

  • Engelbert Stockhammer

    (Department of Economics, Kingston University London)

Abstract
Household debt is at a record high in most OECD countries and it played a crucial role in the recent financial crisis. Several arguments on the macroeconomic drivers of household debt have been put forward, and most have been empirically tested, albeit in isolation of each other. This paper empirically tests seven competing hypotheses on the macroeconomic determinants of household indebtedness together in one econometric study. Existing arguments suggest that residential house prices, upward movements in the prices of assets demanded by households, the income share of the top 1%, falling wages, the rolling back of the welfare state, the age structure of the population and the short-term interest rate drive household indebtedness. We formulate these arguments as hypotheses and test them for a panel of 13 OECD countries over the period 1993 - 2011 using error correction models. We also investigate whether effects differ in boom and bust phases of the debt and house price cycles. The results show that the most robust macroeconomic determinant of household debt is real residential house prices, and that the phase of the debt and house price cycles plays a role in household debt accumulation.

Suggested Citation

  • Glenn Lauren Moore & Engelbert Stockhammer, 2018. "The drivers of household indebtedness re-considered: an empirical evaluation of competing macroeconomic arguments on the determinants of household indebtedness in OECD countries," Working Papers 207, Department of Economics, SOAS University of London, UK.
  • Handle: RePEc:soa:wpaper:207
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    References listed on IDEAS

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    Cited by:

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    2. Léna Pellandini-Simányi & Adam Banai, 2021. "Reluctant financialisaton: Financialisaton without financialised subjectivities in Hungary and the United States," Environment and Planning A, , vol. 53(4), pages 785-808, June.
    3. , Stone Center & Ranaldi, Marco, 2020. "Distributional Aspects of Economic Systems," SocArXiv n7wj4, Center for Open Science.
    4. Ricardo Barradas & Ines Tomas, 2023. "Household indebtedness in the European Union countries: Going beyond the mainstream interpretation," PSL Quarterly Review, Economia civile, vol. 76(304), pages 21-49.
    5. Enache Calcedonia, 2022. "Macroeconomic Determinants of Household Indebtedness in Romania: An Econometric Approach," Journal of Social and Economic Statistics, Sciendo, vol. 11(1-2), pages 102-117, December.
    6. Mark Setterfield & Y.K. Kim, 2024. "How financially fragile can households become? Household borrowing, the welfare state, and macroeconomic resilience," Review of Evolutionary Political Economy, Springer, vol. 5(1), pages 121-151, June.
    7. Ana Romão & Ricardo Barradas, 2024. "Macroeconomic determinants of households' indebtedness in Portugal: What really matters in the era of financialisation?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 383-401, January.
    8. Piotr Bolibok, 2018. "The Macroeconomic Drivers Of Household Debt-To-Income Ratio: An Evidence Frome The Oecd Countries," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 7(2), pages 29-41.
    9. Juniours Marire, 2024. "Interactive influence of house prices and the repo rate on household debt in South Africa," Journal of Economic Analysis, Anser Press, vol. 3(1), pages 58-78, March.
    10. Hulya Dagdeviren & Jiayi Balasuriya & Christopher Nicholas, 2022. "Spatial dynamics of post-crisis deleveraging [Financial geography II: financial geographies of housing and real estate]," Journal of Economic Geography, Oxford University Press, vol. 22(6), pages 1225-1246.
    11. Bogdan Andrei Dumitrescu & Adrian Enciu & Cătălina Adriana Hândoreanu & Carmen Obreja & Florin Blaga, 2022. "Macroeconomic Determinants of Household Debt in OECD Countries," Sustainability, MDPI, vol. 14(7), pages 1-14, March.
    12. Francesco Ruggeri, 2021. "Household debt, aggregate demand, and instability in a Stock-Flow model," Working Papers 4/21, Sapienza University of Rome, DISS.
    13. Peter Flaschel & Sigrid Luchtenberg & Hagen Kramer & Christian Proano & Mark Setterfield, 2021. "Contemporary Macroeconomic Outcomes: A Tragedy in Three Acts," Working Papers 2105, New School for Social Research, Department of Economics.

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    More about this item

    Keywords

    household debt; house prices; cycles;
    All these keywords.

    JEL classification:

    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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