The Borrowing Behaviour of Households: Evidence from the Cyprus Family Expenditure Surveys
Journal
Cyprus Economic Policy Review
Date Issued
December 2011
Author(s)
Abstract
This study investigates how various factors affect households demand for
borrowing in Cyprus using data from the Family Expenditure Surveys for
the years 2002/03 and 2008/09. The descriptive statistics show that middle
income households with a younger age head have relatively high gross
debt-to-income ratios; whereas upper income households with an older
age head tend to have relatively high gross deposits-to-income ratios. The
econometric analysis uses smooth (over the life cycle) income to
investigate the extent to which household borrowing at a given point in
time conforms to long term expectations about future income. The results
conform to theoretical expectation insofar as demand for loans is
determined by smooth, not current, income. This can be interpreted as an
indication that the borrowing behavior of households in Cyprus is rational.
Nevertheless, the results in the paper need to be confirmed by further
analysis to also account for the dynamics of the borrowing-saving behavior
of households. This will be possible when the Household Finance and
Consumption Survey is available in Cyprus, hopefully in the near future.
borrowing in Cyprus using data from the Family Expenditure Surveys for
the years 2002/03 and 2008/09. The descriptive statistics show that middle
income households with a younger age head have relatively high gross
debt-to-income ratios; whereas upper income households with an older
age head tend to have relatively high gross deposits-to-income ratios. The
econometric analysis uses smooth (over the life cycle) income to
investigate the extent to which household borrowing at a given point in
time conforms to long term expectations about future income. The results
conform to theoretical expectation insofar as demand for loans is
determined by smooth, not current, income. This can be interpreted as an
indication that the borrowing behavior of households in Cyprus is rational.
Nevertheless, the results in the paper need to be confirmed by further
analysis to also account for the dynamics of the borrowing-saving behavior
of households. This will be possible when the Household Finance and
Consumption Survey is available in Cyprus, hopefully in the near future.
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