An Analysis of Household Debt on Consumption : in the Swedish Economy

Abstract: Household debts in Sweden have been rising over the last 2 decades. Household debtsinclude both mortgage and consumer loans of households. The Central Bank of Sweden, alsoknown as the Riksbank, measures the household indebtedness situation in Sweden by thehousehold debt to disposable income ratio. With data collected, household indebtedness as aratio to disposable income has shown increasing trends, where it has doubled in percentageover the last ten years. Rising household debt is an issue that needs immediate attention as itcan lead to detrimental effects in the macroeconomic development and financial stability inthe economy. A model which includes the household debt to income ratio alongside otherindependent variables such as income and wealth is created. The dependent variablehousehold consumption will be regressed against the independent variables. This paper seeksto find the relation between household debts and household consumption in the Swedisheconomy, with the data available.