Household Debt and Consumer Spending in Korea: Evidence from Household Data

KIM, Young Il / Hwang, Min

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Household debt in Korea raises concerns about the resilience of the

economy due to its size and quality. Against this backdrop, we

investigate if household leverage matters for private consumption in

adverse economic environments even without severe financial

disruptions. We find that the balance sheet positions in terms of the

leverage ratio may weaken consumption growth. We also find that the

depressive effect of debt on consumption may differ across types of

consumer spending and household characteristics. In particular, the

effects of indebtedness have been much stronger in relation to durable

goods expenditures than in other areas. In addition, debtors in highincome

(wealth) groups have also shown downward adjustments in

consumption even more so than low-income (wealth) groups. These

findings imply that debtors’ precautionary behavior may serve as an

important channel from leverage to consumer spending.

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