Nick Horsewood, Ph.D, Department of Economics, University of Birmingham, Edgbaston, Birmingham, B15 2TT, United Kingdom and John Doling, PhD, Iass, University of Birmingham, Edgbaston, Birmingham, B15 2TT, United Kingdom.
Over the last two decades most advanced countries have witnessed an increase in the stock of household debt, varying in form from outstanding credit card debt to mortgage debt. While there has been an increasing trend in most nations, differences have been observed with the timing and magnitude of the household credit expansion between countries. This paper will focus on identifying the determinants of household debt in OECD countries, with particular emphasis on the EU-15 nations. The analysis will be undertaken at the aggregate level, with data from the OECD, and initial investigation will be carried out on a country-by-country basis, with variables selected from the life-cycle model. Cross-country comparison enables the country specific characteristics to be identified, especially features like the demographic structure and the degree of financial liberalisation in an economy. Particular emphasis will be placed on the role of housing equity in determining household debt as basic theory suggests that collateral is required for loans to be granted. Country’s demographic characteristics, captured by the various age groups of the population, should play an important role as they describe the proportion of the population in a particular stage in the life cycle. Whether the influence of demographic features is the same for each nation is a issue that will be investigated. Pooled estimation, where possible, will be undertaken to capture the variation in institutional features on the level of household debt in EU countries.