Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis
Name
aer.20181585.pdf
Description
Published version
Size
865.78 KB
Format
Adobe PDF
Checksum (MD5)
467b4a4ac0dc9768505f3aa1dbd72636
Author(s)
Verner, Emil
Gyöngyösi, Győző
Date Issued
2020
Journal
American Economic Review
Publisher
American Economic Association
Version
Final published version
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 E21, E32, F34, G51)
MIT Department
Sloan School of Management
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/AER.20181585
