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Journal Article

The role of household debt and balance sheets in the monetary transmission mechanism

Authors

Publication date

2007

Abstract

There is considerable uncertainty about the effect of household debt on the macroeconomy and its role in the monetary transmission mechanism. This article summarises conclusions from recent Bank of England research aimed at shedding light on this issue. It argues that the extent to which levels of household debt affect the outlook for the economy and the way in which the economy responds to unexpected developments, depends on the circumstances of individual borrowers and lenders, as well as wider economic conditions. Recent evidence suggests that there has been little difference in the amount by which the spending of high and low debt households has responded to changes in those households’ financial position. This is likely to be because the benign economic environment and favourable lending conditions have made it easier for households to smooth over adverse shocks. Nevertheless, adverse interactions between debt, house prices and consumption could arise in other circumstances. As such, there is a need to keep this situation under review by continued monitoring of household and lender balance sheets.

Published in

Bank of England Quarterly Bulletin

Volume

47 (1):70-78

ISSN

16

Subjects

Economics, Household Economics, Debt: Indebtedness, and Finance

Links

http://serlib0.essex.ac.uk/record=b1595369

Notes

B.of E. search; Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*

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