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Purba Mukerji

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Households are generally perceived to play a passive role in credit markets. Although the literature on household credit remains scarce and underdeveloped, evidence shows that households, especially in developed and emerging economies, have become active borrowers in credit markets. The 2007-2008 financial crisis was a wakeup call for both credit market institutions and policy makers as it prompted important questions concerning the sustainability of household debts and its possible impact on the stability of the financial sector. Motivated by the aftermaths of the financial crisis, this paper seeks to better understand the relationship between household credit expansion and financial outcomes. I use an approach that focuses on the direct and explicit interactions between household credit growth and financial outcomes. To analyze these relationships, I applied the ordinary least-square and probit regression models. The results obtained suggest that household credit expansion can lead to improvements in the financial sector through the organization of credit markets; implicit diversification of credit risks; and the overall increased trust in financial markets.



The views expressed in this paper are solely those of the author.