An analysis of the relationship between households’ debt and the interest rate
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Abstract
This paper examines how monetary policy in Norway affects householders' debt in the long and short run by adjusting the key policy rate, included as the three-month Nibor. By applying the Vector Error Correction Model (VECM) through time series using data from 2005 to 2022 with endogenous variables such as; Consumer Price Index (CPI), three-month Nibor, house prices, exchange rate and householders' debt. The VECM finds significant results for a longterm relationship between householders’ debt and interest rate. However, the paper fails to confirm a significant relationship in the short term which is not aligned with theory and previous research papers.