Household Debt, Consumption, and Monetary Policy in Australia

IMF Working Papers, April 5, 2019

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Canonical URL: Household Debt, Consumption, and Monetary Policy in Australia

Authors: Elena Loukoianova, Yu Ching Wong, Ioana Hussiada
Date: April 5, 2019
Series: IMF Working Papers
Core focus: evolution of household debt in Australia and the impact of a monetary policy shock on households’ current consumption and durable expenditures conditional on household debt levels.

Higher-income and higher-wealth households tend to have higher debt.
Lower-income households may become more vulnerable to rising debt service over time.
Households’ responses to monetary policy shocks depend on their debt and income levels.
Households with higher debt tend to reduce their current consumption and durable expenditures more than other households in response to a contractionary monetary policy shocks.
Households with low debt may not respond to monetary policy shocks because they hold more interest-earning assets.

Analysis includes: evolution of household debt in Australia; empirical analysis of the impact of a monetary policy shock on consumption and durable expenditures across household debt levels.
Outcomes explored by debt and income groups (debt group, debt exposure).
Subject tags used in the paper: Consumption, Disposable income, Household consumption, Housing prices, Income, National accounts, Prices.
Keywords: consumer debt, consumption, debt, debt exposure, debt group, Disposable income, Global, household, Household consumption, household debt, household survey data, housing debt, Housing prices, Income, monetary policy, monetary policy shock, WP.

Monetary policy transmission to household spending is heterogeneous: higher-debt households are more sensitive to contractionary monetary shocks.
Low-debt households’ relative insensitivity is linked to holdings of interest-earning assets, implying asymmetric effects across the wealth distribution.
Vulnerability of lower-income households to rising debt service suggests policy attention to debt-service burdens and distributional consequences of monetary tightening.