Discussion paper

DP18214 Fisher Effects, Monetary Policy, and Household Indebtedness

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.


Fagereng, A, M Gulbrandsen, M Blomhoff Holm and G Natvik (2023), ‘DP18214 Fisher Effects, Monetary Policy, and Household Indebtedness‘, CEPR Discussion Paper No. 18214. CEPR Press, Paris & London. https://cepr.org/publications/dp18214