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Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis

Author

Listed:
  • Emil Verner

    (Massachusetts Institute of Technology)

  • Győző Gyöngyösi

    (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

We examine the consequences of a sudden increase in household debt burdens by exploiting variation in exposure to household foreign currency debt during Hungary’s late-2008 currency crisis. The revaluation of debt burdens leads to higher default rates and a collapse in spending. These responses lead to a worse local recession, driven by employment losses at non-exporting firms, and negative spillover effects on nearby borrowers without foreign currency debt. The estimates translate into a multiplier on higher debt service of 1.67. The impact of debt revaluation is particularly severe when foreign currency debt is concentrated on household, rather than firm, balance sheets.

Suggested Citation

  • Emil Verner & Győző Gyöngyösi, 2020. "Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis," MNB Working Papers 2020/2, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2020/2
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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G2 - Financial Economics - - Financial Institutions and Services
    • F3 - International Economics - - International Finance
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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