Links Between Household Debt and Macroeconomic Stability: Dynamic Conditional Correlations GARCH Model

Description
Title: Links Between Household Debt and Macroeconomic Stability: Dynamic Conditional Correlations GARCH Model
Authors: Isaac, Scott
Date: 2014-05-16
Abstract: Many of the policy papers leading up to, and following, the 2008 financial crisis addressed elevated household debt as a central issue for macroeconomic stability. While most papers address recent trends in debt at the macro level or micro issues within the household balance sheet, few papers actually address the movement of debt with other key macroeconomic variables. This paper extends the literature on household debt by characterizing the volatility of debt growth with three main macro variables, namely: house prices, the unemployment rate, and durable good sales. The key finding in this paper is that correlations with household debt and these variables are cyclical in nature, but the dynamic correlations differ when looking at residential mortgage debt versus consumer credit debt. This suggests that recent financial innovations and changes in attitudes towards debt affect the correlations with the separate debt components and key macroeconomic variables differently. The primary concern comes from the increased amount of debt households’ hold, and looming changes in the low interest rate environment.
URL: http://hdl.handle.net/10393/31125
CollectionScience économique - Mémoires // Economics - Research Papers
Files