Journal of Applied Finance & Banking

Interest Rates and the Time-Varying Dynamics of Household Credit Growth

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• Abstract

   

  This paper examines the relationship between real interest rate fluctuations and household credit growth by analyzing revolving and non-revolving credit transactions. Using monthly U.S. data from 1990–2025, results show that credit and key macroeconomic variables are integrated of order one and cointegrated, indicating stable long-run equilibrium relationships. Vector Error Correction Model (VECM) estimates show that both credit types adjust gradually toward equilibrium following macroeconomic shocks, though at different speeds of adjustment. Structural break tests, recursive cumulative sum (CUSUM) procedures, and rolling regressions suggest that there is a time variation in the interest rate sensitivity of revolving credit that contrasts the more stable trend observed among non-revolving credit transactions.

   

  JEL classification numbers: E43, E52, G51, C32.

  Keywords: Household credit, Interest rates, Monetary policy transmission, Cointegration, VECM, Structural breaks.