A Study On The Impacts Of Household Debt Changes On Economic Growth And Financial Stability

After the US financial crisis in 2008 caused by the subprime mortgage,the possible impacts of the rapid household debt expansion and the later process of household deleveraging on economic development and financial system have become a critical problem.Although the current researches have exposed the impacts of household debt changes on economic growth and financial stability to some extents,insufficient attention has been paid to the possible heterogeneity of the impacts of household debt changes on economic growth and financial stability.Based on the objective factors that the impacts of household sector debt expansion and the deleveraging process of the household sector is different in international experience,this paper analyzes the heterogeneity of the impacts of household debt changes on economic growth and financial stability from two aspects which are the driving factors of household debt changes and economic characteristics.Using the data of household debt in 135 countries from 1960 to 2016,this paper first explores the impacts of household sector debt expansion on economic growth and financial stability,then analyzes the heterogeneous impacts of household sector debt expansion in economies at different stages of economic development,and further explores whether the differences of driving factors of household debt expansion will lead to different impacts of household debt expansion on economic growth and financial stability.At the same time,this paper explores the impacts of household sector deleveraging on economic growth and financial stability,as well as the impacts of institutional factors and household sector features on the relationships of household sector deleveraging and economic growth and financial stability.The main conclusions are as follows:First of all,household sector debt expansion will have a significant negative impact on the future economic growth,leading to a slowdown in future economic growth,and also exacerbate the degree of financial instability,therefore increasing the probability of happening financial crisis.Compared with developing countries,the expansion of household sector debt has a greater negative impact on financial stability in developed countries.Secondly,from the perspective of the supply-side drivers of household sector debt,changes in the supply drivers of household debt have impacts on the relationships between household debt expansion and economic growth and financial stability.An expansion in household sector debt accompanied by an increase in foreign capital inflows will cause more obvious negative impact on the economic growth in the future,and the above impact is mainly caused by the short-term capital inflows such as portfolio investment and other investment,while the increase in capital inflows for direct investment will not have the same effect.And,the negative impacts of household sector debt expansion on economic growth and financial stability will be amplified by the improvement of financial development and the increase in the degree of monetary policy easing.In addition,there are obvious differences between the consumption behaviors and investment decisions of high-income and low-income groups,which may form a hedging effect,so the increase of income inequality will weaken the effect of household debt expansion on financial stability.Thirdly,from the perspective of the demand-side drivers of household sector debt,changes in the demand drivers of household debt have impacts on the relationships between household debt expansion and economic growth and financial stability.The changes on the short-term household income will not influence the impacts of household sector debt expansion on economic growth and financial stability,but the improvements on the total factor productivity and technological innovation which can influence the long-term household income will weaken the negative impacts of household debt expansion on the economic growth in the future.At the same time,the debt expansion of the household sector based on the increase of household's investment and speculation motivations has a greater negative impact on financial stability,while the increase of household consumption motivation will not affect the impact of household debt expansion on financial stability.In addition,due to the increase of the uncertainty of household's expectation of future economic development increases household's precautionary motivations,the increase of the uncertainty of household's expectation of future economic development will weaken the impacts of household debt expansion on economic growth and financial stability.Fourthly,this paper finds that the deleveraging process of the household sector will have significant negative impacts on economic growth and financial stability,leading to a slowdown in economic growth,and also exacerbate the degree of financial instability.At the same time,when the exchange rate regime is more inclined to a fixed exchange rate regime,the opening degree of capital account is higher,and the independence of monetary policy is lower,the negative impacts of household sector deleveraging on economic growth and financial stability are more obvious.In addition,the improvement of financial literacy of household sector is conductive to restraining the negative impacts of household sector deleveraging on economic growth and financial stability.The above conclusions show that the impacts of household debt changes on economic growth and financial stability is heterogeneous.Supply-side drivers of household sector debt,demand-side drivers of household sector debt,exchange rate regime,household financial literacy and other economic and household characteristics may affect the impacts of household debt changes on economic growth and financial stability.Therefore,regulators and macro-economic decision-making departments should consider the heterogeneity of economic and financial effects of household debt changes when facing household sector debt problems,in order to judge the rationality of household debt changes and the possible impacts on economic development and financial system,so as to avoid the policy mistakes of “one size fits all”.Regulators and macro-economic decision-making departments can adopt opening of capital account gradually,promoting technological innovation,improving the sustainable household income,strengthening the independence of monetary policy,cultivating household financial literacy and other measurements to relief the negative impacts of household sector debt changes on economic growth and financial stability.