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

Emil Verner and Gyozo Gyongyosi

No 2020/2, MNB Working Papers from 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.

Keywords: Fiscal household debt; foreign currency debt; currency crisis; financial crisis; business cycles (search for similar items in EconPapers)
JEL-codes: D12 E2 E3 F3 G2 (search for similar items in EconPapers)
Pages: 88 pages
Date: 2020
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (34)

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Related works:
Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:mnb:wpaper:2020/2

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