U.S. Interest Rate and Household Debt Sustainability: The Case of Korea
AbstractThis 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
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Son, J.C.; Park, H. U.S. Interest Rate and Household Debt Sustainability: The Case of Korea. Sustainability 2019, 11, 3759.
Son JC, Park H. U.S. Interest Rate and Household Debt Sustainability: The Case of Korea. Sustainability. 2019; 11(14):3759.Chicago/Turabian Style
Son, Jong C.; Park, Hail. 2019. "U.S. Interest Rate and Household Debt Sustainability: The Case of Korea." Sustainability 11, no. 14: 3759.
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