Template-Type: ReDIF-Paper 1.0

Author-Name: Emil Verner
Author-X-Name-First: Emil
Author-X-Name-Last: Verner
Author-Email: everner@mit.edu
Author-Workplace-Name: Massachusetts Institute of Technology


Author-Name: Győző Gyöngyösi
Author-X-Name-First: Győző
Author-X-Name-Last: Gyöngyösi
Author-Email: gyongyosigyo@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (Central Bank of Hungary)


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

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.



Length: 88 pages
Creation-Date: 2020
File-URL: https://www.mnb.hu/letoltes/mnb-wp-2020-2-final-en.pdf
File-Format: Application/pdf

Number: 2020/2
Classification-JEL: E2, E3, G2, F3, D12.
Keywords: Fiscal household debt, foreign currency debt, currency crisis, financial crisis, business cycles
Handle: RePEc:mnb:wpaper:2020/2