Template-Type: ReDIF-Paper 1.0

Author-Name: Gyozo Gyongyosi
Author-X-Name-First: Gyozo
Author-X-Name-Last: Gyongyosi
Author-Email: gyongyosi@safe-frankfurt.de
Author-Workplace-Name: Leibniz Institute for Financial Research SAFE and Magyar Nemzeti Bank (Central Bank of Hungary)

Author-Name: Judit Rariga
Author-X-Name-First: Judit
Author-X-Name-Last: Rariga
Author-Email: rarigaj@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (Central Bank of Hungary)

Author-Name: Emil Verner
Author-X-Name-First: Emil
Author-X-Name-Last: Verner
Author-Email: everner@mit.edu
Author-Workplace-Name: MIT Sloan School of Management


Title: The Anatomy of Consumption in a Household Foreign Currency Debt Crisis
Abstract: This paper studies the consumption response to an increase in the domestic value of foreign currency household debt during a large depreciation. We use detailed consumption survey data that follows households for four years around Hungary’s 2008 currency crisis. We find that, relative to similar local currency debtors, foreign currency debtors reduce consumption approximately one‐for‐one with increased debt service, suggesting a role for liquidity constraints. We document a variety of margins of adjustment to the shock. Foreign currency debtors reduce both the quantity and quality of expenditures, consistent with non‐homothetic preferences and "flight from quality." We find no effect on overall household labor supply, consistent with a weak wealth effect on labor supply. However, a small subset of households adjusts labor supply toward foreign income streams. Affected households also boost home production, suggesting a shift in consumption from money‐intensive to time‐intensive goods.
Length: 60 pages
Creation-Date: 2022
File-URL: https://www.mnb.hu/letoltes/mnb-wp-2022-1-final-1.pdf
File-Format: Application/pdf
Number: 2022/1
Classification-JEL: E21, G51.
Keywords: Household debt, foreign currency debt, consumption.
Handle: RePEc:mnb:wpaper:2022/1