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The heterogeneous effects of household debt relief

Author

Listed:
  • Ferreira, Miguel A.
  • Adelino, Manuel
  • Oliveira, Miguel

Abstract

Large-scale debt forbearance is a key policy tool during crises, yet targeting is challenging due to information asymmetries. Using transaction-level data from a Portuguese bank during COVID-19, we find that financially fragile households are more likely to enter forbearance, irrespective of income shocks. Mortgage payment suspension increases consumption and savings, but effects differ across households. Low liquid wealth and income are associated with a higher marginal propensity to consume. Additionally, ineligible households accessing forbearance show a higher propensity to consume than eligible ones. Our results suggest that observable household characteristics can help in the design of effective debt relief policies. JEL Classification: E21, E62, G28, G50, H31

Suggested Citation

  • Ferreira, Miguel A. & Adelino, Manuel & Oliveira, Miguel, 2025. "The heterogeneous effects of household debt relief," Working Paper Series 3034, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253034
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    References listed on IDEAS

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    More about this item

    Keywords

    consumption; COVID-19 pandemic; debt forbearance; income; mortgages;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G50 - Financial Economics - - Household Finance - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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