BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Households’ response to economic crisis
Abstract: This paper studies the economic impact of the current
global economic downturn on the household sector. Household budgets can be
negatively affected by declines in nominal wages and increases in
unemployment. We empirically test this effect for the small open emerging
economy. As a result of a lack of individual data on household finances,
micro data are simulated. Our analysis clearly shows that there is a
significant additional decline in consumption related to an increase in
household default rates and unemployment. We find that potential household
insolvencies have important implications for the financial system as well
as for the macroeconomy.
Keywords: credit cycle; households’ distress; insolvency; household default; aggregate consumption; (follow links to similar papers)
JEL-Codes: G28; G32; G33; G38; (follow links to similar papers)
30 pages, May 6, 2011, Revised May 16, 2011
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