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Australian Household Debt - an empirical investigation into the determinants of the rise in the debt-to-income ratio

Philbrick, Penelope LU and Gustafsson, Linus (2010) NEKM01 20091
Department of Economics
Abstract
Australia’s household debt to disposable income ratio has increased substantially over the last 30 years. While there has been much theoretical discussion into what has caused this development, the empirical research into the field is limited. In this essay we analyse the determinants of the household debt-to-income ratio, using both long-run cointegration analysis and a short-run error-correction model. We find that in the long run the change in the debt ratio depends positively on house prices and negatively on interest rates. In the short run it depends positively on the change in house prices and the consumer sentiment index and negatively on inflation and long-run equilibrium error term. It is also evident that there is a high degree... (More)
Australia’s household debt to disposable income ratio has increased substantially over the last 30 years. While there has been much theoretical discussion into what has caused this development, the empirical research into the field is limited. In this essay we analyse the determinants of the household debt-to-income ratio, using both long-run cointegration analysis and a short-run error-correction model. We find that in the long run the change in the debt ratio depends positively on house prices and negatively on interest rates. In the short run it depends positively on the change in house prices and the consumer sentiment index and negatively on inflation and long-run equilibrium error term. It is also evident that there is a high degree of inertia in the debt-to-income ratio indicating that it takes a long time for households to adjust their debt levels to current economic conditions. (Less)
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author
Philbrick, Penelope LU and Gustafsson, Linus
supervisor
organization
course
NEKM01 20091
year
type
H1 - Master's Degree (One Year)
subject
keywords
economic theory, econometrics, Economics, Australia, Error-correction model, Household debt, Johansen approach, Life cycle hypothesis, Cointegration, economic systems, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
language
English
id
1848310
date added to LUP
2010-02-10 00:00:00
date last changed
2011-06-01 12:43:57
@misc{1848310,
  abstract     = {Australia’s household debt to disposable income ratio has increased substantially over the last 30 years. While there has been much theoretical discussion into what has caused this development, the empirical research into the field is limited. In this essay we analyse the determinants of the household debt-to-income ratio, using both long-run cointegration analysis and a short-run error-correction model. We find that in the long run the change in the debt ratio depends positively on house prices and negatively on interest rates. In the short run it depends positively on the change in house prices and the consumer sentiment index and negatively on inflation and long-run equilibrium error term. It is also evident that there is a high degree of inertia in the debt-to-income ratio indicating that it takes a long time for households to adjust their debt levels to current economic conditions.},
  author       = {Philbrick, Penelope and Gustafsson, Linus},
  keyword      = {economic theory,econometrics,Economics,Australia,Error-correction model,Household debt,Johansen approach,Life cycle hypothesis,Cointegration,economic systems,economic policy,Nationalekonomi,ekonometri,ekonomisk teori,ekonomiska system,ekonomisk politik},
  language     = {eng},
  note         = {Student Paper},
  title        = {Australian Household Debt - an empirical investigation into the determinants of the rise in the debt-to-income ratio},
  year         = {2010},
}