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

Emil Verner and Gyozo Gyongyosi

American Economic Review, 2020, vol. 110, issue 9, 2667-2702

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 causes higher default rates and a collapse in spending. These responses lead to a worse local recession, driven by a decline in local demand, and negative spillover effects on nearby borrowers without foreign currency debt. The estimates translate into an output 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.

JEL-codes: E21 E32 F34 G51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (33)

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Related works:
Working Paper: Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis (2020)
Working Paper: Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis (2018)
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DOI: 10.1257/aer.20181585

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