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Negative Interest Rate & the Level of Household Debt: A Vector Autoregressive approach in a European perspective.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2017 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

Ever since the big recession of the world economy 2007, the central banks in Europe have struggled to regain financial stability. Their goals have been hard to reach and 2014 The European Central bank (ECB) introduced negative interest rates for the first time in the world history. However, today, year 2016, many countries still have not been able to reach their inflation target. During this time with expansive monetary policies, many European Union (EU) members have faced rising level of household debts to GDP.

This study focus on EU-members and uses a Vector Autoregressive method, Granger causality test and an impulse-response test to give a greater understanding about the association between the level of household debt and interest rate. Further, it aims to investigate if the negative interest rate has an impact on that association. However, our empirical results show that there is a significant negative association between the level of household debt and the interest rate in Austria, Belgium, Bulgaria, Finland, Germany, Italy, Poland, Romania, Slovakia, Spain and Sweden. Further, they show that there is a granger causality from the interest rate to the level of household debt for Belgium, Finland, Germany, Poland, Slovakia and Sweden. For all these countries, our findings show that a shock in the interest rate have a short-term effect on the level of household debt.

Lastly, we found no statistical significant evidence for that the negative association between the interest rate and the level of household debt does increase when the interest rate is negative.

Place, publisher, year, edition, pages
2017.
Keyword [en]
Level of household debt, interest rate, negative interest rate, transmission mechanism.
National Category
Economics
Identifiers
URN: urn:nbn:se:umu:diva-132005OAI: oai:DiVA.org:umu-132005DiVA: diva2:1077817
Available from: 2017-03-01 Created: 2017-03-01

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf