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Households’ response to economic crisis

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  • Jakubik, Petr

    ()
    (BOFIT)

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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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 7/2011.

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Length: 30 pages
Date of creation: 06 May 2011
Date of revision: 16 May 2011
Handle: RePEc:hhs:bofitp:2011_007

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
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Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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Related research

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

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  1. Robert-Paul Berben & Kerstin Bernoth & Mauro Mastrogiacomo, 2007. "Households' response to wealth changes: do gins or losses make a difference?," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 1, volume 25, pages 145-160 Bank for International Settlements.
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