The Macroeconomic Determinants of Household Debt in Malaysia

The number of household debt in Malaysia continue to increase and seen as one of the effects of the unstable Malaysian economy. Consequently, authors motivated to do the study that focuses on analyzing the debt offered to the consumer. The research paper aims to examine the relationship and impact of macroeconomic determinants or variables on household debt in Malaysia and to determine the most significant factor that affects household debt. The study used the annual secondary data from 1984 to 2018, taken from reliable sources; Databank, Knoema, Bloomberg, and Bank Negara Malaysia. Three macroeconomic determinants used; Gross Domestic Product (GDP), Unemployment Rate (UN-EM), and Inflation Rate (INF). The relationship between macroeconomic determinants and household debt is analyzed using Econometric method namely Descriptive Analysis, Augmented Dickey Fully (ADF), Unit Root Test, Philips-Perron (PP) Unit Root Test, Normality Test, and Regression Analysis. Based on the multiple Regression Model Test, the results showed that all the three variables; the GDP, UN-EM and INF, have direct relationships with or pose positive impacts on the household debt. The UN-EM showed the largest and followed by the GDP. The finding indicates that the rise of these independent variables determines the rise of household debt. Only the GDP and UN-EM are significant determinants, while INF is found insignificant. Findings of this study reinforced that the household uses the debt as a substitute for income to finance the rising consumption due to the higher cost of living. The findings demonstrate that the debt level is high and show the actual national struggles. As a recommendation, the future researcher could use different data structure, research on other countries and add more macroeconomic variables.