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Why do households repay their debt in UK during the COVID-19 crisis?

Author

Listed:
  • Emmanuel Mamatzakis
  • Mike G. Tsionas
  • Steven Ongena

Abstract

Purpose - In this paper, the authors investigate whether coronavirus disease 2019 (COVID-19) impacts household finances, like household debt repayments in the UK. Design/methodology/approach - This paper employs a vector autoregressive (VAR) model that nests neural networks and uses Mixed Data Sampling (MIDAS) techniques. The authors use data information related to COVID-19, financial markets and household finances. Findings - The authors' results show that household debt repayments' response to the first principal component of COVID-19 shocks is negative, albeit of low magnitude. However, when the authors employ specific COVID-19-related data like vaccines and tests the responses are positive, insinuating the underlying dynamic complexities. Overall, confirmed deaths and hospitalisations negatively affect household debt repayments. The authors also report low persistence in household debt repayments. Generalised impulse response functions (IRFs) confirm the main results. As draconian measures, the lockdowns are eased and the COVID-19 shocks are diminishing, and household financial data converge to the levels prior to the pandemic albeit with some lags. Originality/value - To the best of the authors' knowledge, this is the first study that examines the impact of the pandemic on household debt repayments. The authors' findings show that policy response in the future should prioritise innovation of new vaccines and testing.

Suggested Citation

  • Emmanuel Mamatzakis & Mike G. Tsionas & Steven Ongena, 2023. "Why do households repay their debt in UK during the COVID-19 crisis?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(8), pages 1789-1823, April.
    • Handle: RePEc:eme:jespps:jes-10-2022-0540
    DOI: 10.1108/JES-10-2022-0540
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    1. Thomas Hale & Noam Angrist & Rafael Goldszmidt & Beatriz Kira & Anna Petherick & Toby Phillips & Samuel Webster & Emily Cameron-Blake & Laura Hallas & Saptarshi Majumdar & Helen Tatlow, 2021. "A global panel database of pandemic policies (Oxford COVID-19 Government Response Tracker)," Nature Human Behaviour, Nature, vol. 5(4), pages 529-538, April.
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    More about this item

    Keywords

    COVID-19; Household debt; ANN; VAR; MIDAS;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G00 - Financial Economics - - General - - - General
    • G1 - Financial Economics - - General Financial Markets
    • I1 - Health, Education, and Welfare - - Health

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