Determinants of household debt in Thailand: A cointegration and VECM analysis

Abstract

Household debt has become a major macroeconomic concern in Thailand since its persistently high level and potential risks to economic and financial stability. This study investigates the long-run and short-run macroeconomic and financial determinants of household debt in Thailand, utilizing quarterly data from 1998Q1 to 2025Q3. The Johansen cointegration approach and Vector Error Correction Model (VECM) are employed to estimate the long-run relationship and short-run dynamics of household debt ratio and its determinants, respectively. The results reveal that gross domestic product (GDP), the domestic interest rate, and non-performing loans (NPLs) are negatively associated with the household debt ratio in the long run, whereas the housing price index, unemployment rate, and household consumption have positive effects. In the short run, GDP positively affects household debt, implying that stronger economic activity may initially encourage borrowing, while sustained income growth may reduce indebtedness over time. Household consumption, domestic interest rate and non-performing loans significantly influence short-run household debt dynamics. The error correction term indicates that approximately 48.1% of deviations from long-run equilibrium are corrected each quarter. By integrating macroeconomic and financial-sector factors within a unified framework, this study provides Thailand-specific evidence and policy insights for managing household indebtedness and maintaining financial stability.