Interest Rates vs Unemployment Rates and Their Impact on Consumer Debt
presentationposted on 06.05.2016, 00:00 by Bianca Zuniga
In a current culture where the public eye heavily criticizes the federal government's accrual of debt, what can be said of an individual's debt accumulation? What variables affect the changes in aggregate consumer debt? Common thought has been that as interest rates decrease, consumers are attracted to increase their borrowing because it becomes cheaper (interest payments decrease). As true as this observation is, the significance of this effect hasn't been measured against other variables associated with debt. For example, when comparing the effect of interest rates against the effects of unemployment rates on total national measures of consumer debt, credit card debt, non-credit card debt, and mortgage debt the latter variable inflicts more impact on the metrics. The significant effect of unemployment rates on the aforementioned debt measurements was evident after conducting multivariable regressions on the selected data. Understanding the significance of this effect provides insight into national debt dynamics, thus providing useful tools in deciding economic policy.