Abstract
US household debt increased on a yearly basis from 1987 to 2007. In addition, household debt in the USA nearly doubled between 2000 and 2007, from $5.6 trillion to $9 trillion. This came to an abrupt end in 2009 with the crash of the financial market. This paper employs the bound test and Auto-regressive Distributed Lag Model to determine the long-run relationship between US household debt and consumer prices, housing prices, the unemployment rate, and the lending rate. Unit root tests were conducted first to ascertain the stationarity of the variables. E-views 11 was used in the analysis of the data, which was obtained from Q1: 1990 to Q1: 2007 from the International Monetary Fund and the US FED. It was found that in the long run, there is a negative effect of consumer prices and unemployment on US household debt, while house prices and the lending rate would have a positive effect on household debt.
Highlights
The period of 2000 to 2009 is marked by drastic increases and decreases in US household debt
E-views 11 was used in the analysis of the data, which was obtained from Q1: 1990 to Q1: 2007 from the International Monetary Fund and the US Federal Reserve (FED)
It was found that in the long run, there is a negative effect of consumer prices and unemployment on US household debt, while house prices and the lending rate would have a positive effect on household debt
Summary
The period of 2000 to 2009 is marked by drastic increases and decreases in US household debt. These upswings and eventual downswing in the US credit market have been the most significant since the Great depression of 1929. To add to this matter, from 1987 to 2007 US household debt has increased on a yearly basis. No universal agreement exists, there is an agreement amongst scholars that debt is an important factor in the macroeconomic environment (Wildauer, 2016)
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