Household Debt and Macroeconomic Variables in Malaysia

The rise of household debt in Malaysia has caused consternation since it has almost reached 89.1% of total GDP. The level of household debt is deemed to be at worrying stage as it may trigger another financial crisis. The purpose of this study is to examine factors that influence household debt in Malaysia via time series data. This study employs the ordinary least square (OLS) method and the macroeconomic variables used consist of base lending rate, housing price index, gross domestic product and unemployment as independent variables taken in the period from quarter one 2008 to quarter four 2015. The results show that the housing price index is the most significant variable, followed by base lending rate, unemployment and gross domestic product. House pricing index and gross domestic product show positive relationships with household debt, which indicates that the rise of household debt is determined by the rise of these explanatory variables. However, base lending rate and unemployment are found to have negative effects on the rise of household debt. The data are taken from Bank Negara Malaysia report, National Property Information Centre (NAPIC) and Asia Regional Integration Centre. (C) 2016 Published by Future Academy www.FutureAcademy.org.uk