High debt tends to reduce consumption growth – Norges Bank memo

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Norges Bank

Recognising heterogeneity among households is essential when properly modelling their response to income shocks, with debt playing a particularly important role, according to research published on February 15 by Norges Bank.

In a ‘staff memo’, Debt and household consumption responses, Andreas Fagereng and Elin Halvorsen find “substantial heterogeneity” among household balance sheets in terms of their ability to cope with interest hikes, income shortfalls and house-price drops.

They find that

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