Abstract
This paper studies the economic impact of the current global economic downturn on the household sector and aims to find critical values for key macroeconomic indicators. The economic downturn arguably makes it less likely that households will be able to repay their loans.
Household budgets can be negatively affected by declines in nominal wages and increases in unemployment. We empirically test this effect for the Czech economy, but our results are more general.
Our analysis describes two basic mechanisms causing the increase in the insolvency rate - a decline in nominal wages and an increase in unemployment. We find that potential household insolvencies have important implications for the financial system as well as for the economy as a whole.