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Why has the household debt ever increased in Korea? : Empirical analysis of the persistence in household debt

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  • Why has the household debt ever increased in Korea?
  • Yoo, Kyeongwon; Hwang, Jin-tae
  • Association of Korean Economic Studies


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Title Why has the household debt ever increased in Korea?
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Sub Title

Empirical analysis of the persistence in household debt

Material Type Report
Author(English)

Yoo, Kyeongwon; Hwang, Jin-tae

Publisher

[Seoul, South Korea] : Association of Korean Economic Studies

Date 2013-03
Pages 16
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Economic Conditions
Holding Association of Korean Economic Studies
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Abstract

While the major developed countries have been deleveraging since the global financial crisis and the subsequent sovereign debt crisis, the household debt has been increasing constantly in South Korea. Many people are so concerned that the ever increasing household debt may affect the financial stability in the near future. Previous literature on an increase in household debt deals primarily with its cause and the capacity to repay it using static analyses. This paper tackles the persistence of household debt using dynamic panel models along with LOWESS analysis. We observe that such a constant increase in household is due to existing indebted households’ debt increase with the households’ persistent debt behavior, rather than new households’ entry to the loan market. Based on the estimated results, more than 10 years may be required to deleverage in financial debts after the households enter the loan market in Korea. This persistence seems to be closely related to the Korean mortgage system.