Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269176 
Year of Publication: 
2022
Series/Report no.: 
MNB Working Papers No. 2022/1
Publisher: 
Magyar Nemzeti Bank, Budapest
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 nonhomothetic 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.
Subjects: 
Household debt
foreign currency debt
consumption
JEL: 
E21
G51
Document Type: 
Working Paper

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