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Excessive household debt: causes, trends and consequences


  • Péter Bauer

    () (Magyar Nemzeti Bank (the central bank of Hungary))

  • Mariann Endrész

    () (Magyar Nemzeti Bank (the central bank of Hungary))

  • Regina Kiss

    () (Magyar Nemzeti Bank (the central bank of Hungary))

  • Zsolt Kovalszky

    () (Magyar Nemzeti Bank (the central bank of Hungary))

  • Ádám Martonosi

    () (Magyar Nemzeti Bank (the central bank of Hungary))

  • Olivér Rácz

    () (Magyar Nemzeti Bank (the central bank of Hungary))

  • István Schindler

    () (Magyar Nemzeti Bank (the central bank of Hungary))


The decade preceding the 2008 recession was marked by a rapid rise in household debt in several regions. Strong household lending prior to the recession boosted economic growth in the affected countries, but indebtedness then became one of the main sources of vulnerability of these countries with the onset of the economic crisis. Economies that saw a rapid rise in household debt were characterised by a stronger drop in domestic demand and a longer-than-average recovery time. This analysis focuses on the evolution of household debt in Hungary. As the weight of foreign currency denominated loans within total lending in Hungary was elevated, we examine in detail the spread of foreign currency lending among households and its consequences. Viewed from an international perspective, household lending in Hungary rose sharply from the low level prevailing in the early 2000s. This expansion first appeared in HUF-denominated lending, and from 2004 this was followed by an increasing preponderance of foreign currency lending among consumer and housing loans. During the pre-crisis era, the rise of foreign currency lending was also high by regional standards. Based on our estimates, the rise in debt was a balanced process until 2006-2007, whereas after that the loan volume exceeded its long-run equilibrium level. In addition to declines in real incomes, foreign currency denominated loans also contributed substantially to this process. Since 2009 household behaviour has been shaped by strong deleveraging. Households became net loan repayers, gradually decreasing their level of debt. Due to the revaluation of foreign currency denominated loans, deleveraging is a prolonged process, and thus the high loan volume may continue to hamper a recovery in household consumption.

Suggested Citation

  • Péter Bauer & Mariann Endrész & Regina Kiss & Zsolt Kovalszky & Ádám Martonosi & Olivér Rácz & István Schindler, 2013. "Excessive household debt: causes, trends and consequences," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 8(Special), pages 28-36, October.
  • Handle: RePEc:mnb:bullet:v:8:y:2013:i:special:p:28-36

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    References listed on IDEAS

    1. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2007. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," MPRA Paper 6759, University Library of Munich, Germany.
    2. Andrew Crockett & Chairman, 1999. "General discussion : exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 411-422.
    3. Jesús Crespo Cuaresma & Jarko Fidrmuc & Mariya Hake, 2011. "Determinants of Foreign Currency Loans in CESEE Countries: A Meta-Analysis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 69-87.
    4. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2011. "Financial dollarization: The role of foreign-owned banks and interest rates," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 794-806, April.
    5. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    6. Calvo-Gonzalez, Oscar & Basso, Henrique S. & Jurgilas, Marius, 2007. "Financial dollarization: the role of banks and interest rates," Working Paper Series 748, European Central Bank.
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    Cited by:

    1. Vidakovic, Neven & Zbašnik, Dušan, 2014. "Capital Flows, Credit Crunch and Deleveraging Dynamics: The Case of Slovenia, Croatia and Hungary in Comparison," MPRA Paper 63959, University Library of Munich, Germany.

    More about this item


    household foreign currency borrowing; financial crisis; balance sheet adjustment;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises


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