The Foreign Currency Fisher Channel: Evidence from Households
86 Pages Posted: 11 Feb 2022 Last revised: 16 Jun 2023
There are 2 versions of this paper
The Foreign Currency Fisher Channel: Evidence from Households
The Anatomy of Consumption in a Household Foreign Currency Debt Crisis
Date Written: June 16, 2023
Abstract
This paper studies how households adjust consumption and labor supply to a large revaluation of foreign currency-denominated household debt. Our analysis uses detailed household-level data during Hungary’s large depreciation in 2008. Relative to similar local currency debtors, foreign currency debtors reduce consumption expenditures one-for-one with increased debt service, consistent with a foreign currency Fisher channel of the depreciation. Foreign currency debtors reduce both the quantity and quality of expenditures, consistent with a “flight from quality.” Debt revaluation does not affect overall labor supply, but there is a small adjustment toward foreign income streams and a substantial increase in home production.
Keywords: foreign currency debt, debt crisis, currency crisis, household consumption, labor supply
JEL Classification: E2, E3, G2, F3, D12
Suggested Citation: Suggested Citation