Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297031 
Year of Publication: 
2024
Series/Report no.: 
Danmarks Nationalbank Working Papers No. 200
Publisher: 
Danmarks Nationalbank, Copenhagen
Abstract: 
Consumer credit spreads significantly impact consumption and asset dynamics, affecting indebted households' spending behavior and the income sensitivity of consumption. Analyzing Danish data, we find that elevated credit spreads reduce consumption of indebted households. Our results suggest that the marginal propensity to consume (MPC) is countercyclical, with credit spreads playing a crucial role. We develop a HANK model, incorporating bank financing for both firms and households. Agency frictions generate a countercyclical credit spread, which induces heterogeneous incidence of aggregate shocks consistent with the data. Banking regulation, while stabilizing at the aggregate level, may induce volatility at the household level.
Subjects: 
Household consumption
consumer credit spreads
business cycles
financial frictions
incomplete markets
macroprudential regulation
monetary policy
JEL: 
C11
D12
D31
E32
E52
G51
Document Type: 
Working Paper

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