Survey_Debelle_2004

Abstract

This paper examines the factors that have contributed to the rise in the debt. It highlights two main influences: firstly a decrease in the prevalence of credit rationing that resulted from the deregulation of financial systems that occurred through the 1980s, and secondly the decline in interest rates, both in real and nominal terms, over the past two decades. In addition to the direct effect of a lower cost of borrowing, these factors have contributed to a sizeable easing of liquidity constraints on households. These developments have allowed households to structure their borrowing to achieve a more desirable path of consumption over their life cycle than was possible previously. In this sense the increased indebtedness can be seen as rational decisions by households. However, it is difficult to assess whether these factors can explain the full extent of the rise in indebtedness that has occurred.