Keeping up with the Joneses

About this Seminar

Inequality has become an increasingly important topic among researchers and policymakers, both in terms of what causes inequality and what effects it can have on growth and the economy more generally. One channel through which inequality could affect the economy is by influencing the amount of borrowing, and its allocation across households. Some have argued that in local areas where incomes are very unequal, households may try to ‘keep up’ with their more affluent neighbours by borrowing more. This has important potential implications for both financial and economic stability if it leads households to borrow too much and become more sensitive to negative shocks.

Kim Nguyen from The Reserve Bank of Australia (RBA) has recently conducted research on this topic, examining whether households tend to borrow more as local income inequality increases and if so, who borrow more and what they borrow for. The findings indicate that middle-income households without liquidity and credit constraints tend to borrow more for non-residential investment purposes as local income inequality rises, suggesting that they are trying to close the income gap. They also appear to try to close the consumption gap by accumulating more car debt with a rise in local income inequality. However, since these households are unlikely to have difficulty repaying their debt, there is limited financial stability concern.

About the Speaker Kim Nguyen is an economist at the Reserve Bank of Australia and a member of the Micro Analysis and Data team in the Economic Research Department. Her research focuses on labour markets, household finance, and business finance. She also has a particular interest in applying data science techniques, such as text analytics, on unconventional data to answer economic and policy questions. Kim holds a Master's in Economics from the University of British Columbia and is completing her PhD in Economics at the University of Sydney.

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This is a hybrid event, being held in-person at Macquarie University City Campus, Room 2415, Level 23 and online via Zoom.

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Disclaimer: The Economic Society of Australia promotes discussion of evidence-based work.  The views and opinions expressed here are those of author(s) and do not necessarily reflect the official policy or position of the Economic Society of Australia (NSW Branch) or its council members.