Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269140 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2733
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
How do households adjust to a large debt shock? This paper studies household responses to a revaluation of foreign currency household debt during a large depreciation in Hungary. Relative to similar local currency debtors, foreign currency debtors reduce consumption expenditures approximately one-for-one with increased debt service, suggesting binding liquidity constraints. Foreign currency debtors reduce both the quantity and quality of expenditures, consistent with nonhomothetic preferences and a "flight from quality." Debt revaluation has no effect on labor market status, hours, or earnings, but there is a small adjustment toward foreign income streams and a substantial increase in home production.
Subjects: 
Marginal propensity to consume
flight from quality
home production
JEL: 
E21
G51
J20
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5320-7
Document Type: 
Working Paper

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