The Influence of Macroeconomic Environment on Australian Household Debt: An Application of Dynamic OLS

Abstract

Concerns about household debt increase with the escalating debt level in developed countries. Australia is a good example of this. This paper applies the dynamic ordinary least square (DOLS) method to explore the determinants and influences of Australian household debt. The results show that the rising Australian household debt results from the increased size of the economy, a booming housing market, a favourable macroeconomic environment and favourable government policies. Although the rising household debt stimulates economic growth in the short run, it may induce economic instability in the long run.