Next Article in Journal
Additive Manufacturing: Exploring the Social Changes and Impacts
Previous Article in Journal
Walking Access to Public Transportation Stops for City Residents. A Comparison of Methods
Article Menu

Export Article

Open AccessArticle

U.S. Interest Rate and Household Debt Sustainability: The Case of Korea

1
Division of Economics, Hankuk University of Foreign Studies, Seoul 02450, Korea
2
Department of International Business and Trade, Kyung Hee University, Seoul 02447, Korea
*
Author to whom correspondence should be addressed.
Sustainability 2019, 11(14), 3759; https://doi.org/10.3390/su11143759
Received: 30 May 2019 / Revised: 2 July 2019 / Accepted: 5 July 2019 / Published: 10 July 2019
  |  
PDF [487 KB, uploaded 10 July 2019]
  |  

Abstract

This paper revisits the issue of household debt sustainability in Korea responding to changes in U.S. interest rates. We investigate not only the transmission channels from U.S. interest rates to domestic interest rates, using the Bayesian VAR (vector autoregression) model, but also the issue of identifying households that are vulnerable in terms of their debt repayments, and we execute projections for the upcoming years given conditional forecasts and various macroeconomic scenarios. The estimation results indicate that first, the domestic policy rate will likely increase and then stagnate conditionally on the path of the U.S. policy rates. Second, the ratios of vulnerable households over total indebted households, which has been growing since 2012, will likely expand mildly over the upcoming years given an approximately 1.6%p gradual increase in interest rates and stable macroeconomic environments. Finally, however, the projected trend of domestic interest rates can cause a rapid expansion in the ratios of vulnerable households, in conjunction with a series of combined negative shocks such as highly concentrated principal repayment schedules, sharp declines in housing prices, and the occurrence of a crisis. View Full-Text
Keywords: household debt sustainability; vulnerable households; over-indebted households; marginal households; households at risk of default; Bayesian VAR household debt sustainability; vulnerable households; over-indebted households; marginal households; households at risk of default; Bayesian VAR
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Son, J.C.; Park, H. U.S. Interest Rate and Household Debt Sustainability: The Case of Korea. Sustainability 2019, 11, 3759.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Sustainability EISSN 2071-1050 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top