Working Paper: CEPR ID: DP18214
Authors: Andreas Fagereng; Magnus AH Gulbrandsen; Martin Blomhoff Holm; Gisle Natvik
Abstract: Growth in household debt-to-income ratios can be attributed to nominal debt changes or “Fisher effects” from interest income and expenses, real income growth, and inflation. With microdata covering the universe of Norwegian households for more than 20 years, we decompose the importance of these channels for how debt-to-income ratios evolve over time and respond to monetary policy shocks. On average, debt changes outsize Fisher effects, but among highly leveraged households Fisher effects dominate. After interest rate hikes, debt changes and Fisher effects pull in opposite directions. The former dominate so that debt-to-income ratios fall. This pattern holds across sub-groups, including highly indebted households, recent movers, households facing liquidity constraints, and households facing high unemployment risk.
Keywords: household debt; monetary policy
JEL Codes: E21; E52; D14; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nominal debt changes (H63) | Household debt-to-income ratios (G59) |
| Interest rate hikes (E43) | Nominal debt changes (H63) |
| Monetary policy shocks (E39) | Disposable income (D31) |
| Disposable income (D31) | Household debt burdens (G51) |
| Monetary policy shocks (E39) | Fisher effects (E43) |
| Monetary policy shocks (E39) | Household debt-to-income ratios (G59) |
| Interest rate hikes (E43) | Household debt-to-income ratios (G59) |