Research paper
Central bank interest rate decisions, household indebtedness, and psychiatric morbidity and distress: Evidence from the UK

https://doi.org/10.1016/j.jad.2018.03.003Get rights and content
Under a Creative Commons license
open access

Highlights

  • There is a strong link between indebtedness and mental illness.

  • No prior work has assessed how central bank interest rates influence mental health.

  • We show that interest rate changes may pose a threat to the mental health of those heavily indebted.

  • Central banks need to consider how their decisions influence population mental health.

  • Additional mental health support is needed for those in debt.

Abstract

Background

Central banks set economy-wide interest rates to meet exclusively economic objectives. There is a strong link between indebtedness and psychiatric morbidity at the individual level, with interest rates being an important factor determining ability to repay debt. However, no prior research has explored whether central bank interest rate changes directly influence mental health, nor whether this varies by levels of indebtedness.

Methods

We use British data (N = 93,255) to explore whether the Bank of England base-rate affected how perceived burden of non-mortgage debt (low, medium, and high) influenced psychiatric morbidity. Psychiatric morbidity was measured using the General Health Questionnaire (GHQ-12). Our primary outcome measure was a binary indicator of “psychiatric caseness” (>3 on a 0–12 scale). We also used the GHQ-12 as a continuous measure of distress.

Results

When interest rates are high (low) there is an increased (decreased) risk of psychiatric morbidity only among those with a high debt burden (b = 0.026, p =  0.02). This result was robust to alternative explanations. Thus a 1 percentage point base-rate increase is associated with a 2.6% increase that someone with a high debt burden will experience psychiatric morbidity.

Limitations

Our study uses subjective indicators of debt burden. We were unable to determine the mechanism behind our effect.

Conclusions

Changes in central bank interest rates to meet economic objectives pose a threat to mental health. Mental health support is needed for those in debt and central banks may need to consider how their decisions influence population mental health.

Keywords

Policy making
Indebtedness
Psychiatric morbidity
Mental health
Monetary policy

Cited by (0)

1

Formally at the University of Stirling when the research was conducted