The Determinants of Australian Household Debt: A Macro-level Study

Abstract

Household debt in Australia has grown at an astonishing rate since the 1990s. This paper employs a cointegrated Vector Autoregression (VAR) model to explore the determinants of Australian household debt. The results show that GDP is the most important determinant, followed by the housing prices and the number of new dwellings. Meanwhile, interest rates, unemployment rate and inflation are found to have a negative effect on Australian household debt; of these, interest rates are the most significant. Based on these results, it is judicious to rein in household debt in the economic booms through reforms to the financial system, standardizing lending market, monitoring and intervening in assets market, and using the monetary policy timely, comprehensively, and carefully.