The Anatomy of Consumption in a Household Foreign Currency Debt Crisis

Gyozo Gyongyosi, Judit Rariga () and Emil Verner
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Judit Rariga: Magyar Nemzeti Bank (Central Bank of Hungary)

No 2022/1, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

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.

Keywords: Household debt; foreign currency debt; consumption. (search for similar items in EconPapers)
JEL-codes: E21 G51 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2022
New Economics Papers: this item is included in nep-mac
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Related works:
Working Paper: The anatomy of consumption in a household foreign currency debt crisis (2022)
Working Paper: The anatomy of consumption in a household foreign currency debt crisis (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:mnb:wpaper:2022/1

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