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Household Balance Sheets and Economic Crisis

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Abstract

This paper studies the economic impact of the current global economic downturn on the household sector. Household budgets can be negatively affected by declines in nominal wages and increases in unemployment. We empirically test this effect for the small open emerging economy. As a result of a lack of individual data on household finances, micro data are simulated. Our analysis clearly shows that there is a significant additional decline in consumption related to an increase in household default rates and unemployment. We find that potential household insolvencies have important implications for the financial system as well as for the macroeconomy.

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File URL: http://ies.fsv.cuni.cz/default/file/download/id/17066
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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2011/20.

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Length: 18pages
Date of creation: Jun 2011
Date of revision: Jun 2011
Handle: RePEc:fau:wpaper:wp2011_20

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Keywords: credit cycle; households’ distress; insolvency; household default; aggregate consumption;

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  1. Robert Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2006. "Households' Response to Wealth Changes: Do Gains or Losses make a Difference?," DNB Working Papers 090, Netherlands Central Bank, Research Department.
  2. Laura Berger-Thomson & Elaine Chung & Rebecca McKibbin, 2009. "Estimating Marginal Propensities to Consume in Australia Using Micro Data," RBA Research Discussion Papers rdp2009-07, Reserve Bank of Australia.
  3. Merxe Tudela & Garry Young, 2005. "The determinants of household debt and balance sheets in the United Kingdom," Bank of England working papers 266, Bank of England.
  4. Frank Barry & John Bradley & Michal Kejak & David Vavra, 2003. "The Czech economic transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 539-567, 09.
  5. Barrell, Ray & Davis, E. Philip & Pomerantz, Olga, 2006. "Costs of financial instability, household-sector balance sheets and consumption," Journal of Financial Stability, Elsevier, vol. 2(2), pages 194-216, June.
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