Gyozo Gyongyosi
Győző Gyöngyösi is an assistant professor at Utrecht School of Economics, Utrecht University. He held positions at Kiel Institute for the World Economy and Leibniz Institute for Financial Research SAFE and has a PhD from Central European University. His research focuses on household finance and political economy and his work has been published in the American Economic Review and Journal of Finance.
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Győző Gyöngyösi is an assistant professor at Utrecht School of Economics, Utrecht University. He held positions at Kiel Institute for the World Economy and Leibniz Institute for Financial Research SAFE and has a PhD from Central European University. His research focuses on household finance and political economy and his work has been published in the American Economic Review and Journal of Finance.
In their own words…
IEA: Can you tell us a little bit about your life story, what got you interested in economics, and how you decided to pursue an academic career?
Győző: There were two important experiences that led me toward an academic career. First, while I was already an undergraduate student, an econometrics course recommended by my brother raised my interest in economics. Although I did not have the background as the course targeted more senior students, I attended the introductory econometrics lecture by the late Gábor Kézdi. It was an amazing lecture about the history of econometrics, the gentlemen scientist, Francis Galton, measuring causal effect and explaining instrumental variables. I was immediately fascinated by measuring causal effects as well as the broad topics of applications.
Second, my first real job was a policy position at a central bank. Although it was interesting that the topics and questions changed from quarter to quarter, there was not much time to delve deeper into the topics that we worked on because of strict deadlines. This motivated me to go back to study for a PhD.
IEA: In your recent work, you study the impact of debtor distress on support for a populist far-right political party during a financial crisis. Can you briefly summarize your findings? What made you interested in this topic?
Győző: In this work, which is joint with Emil Verner, we start from the observation that financial crises are often followed by increased political polarization and high support for populist and extremist parties. This happened in my home country Hungary as well, which made me interested in this question. In the wake of the 2008 financial crisis, a populist far right party, Jobbik (Movement for a Better Hungary), which vote share increased from 2.2 percent in 2006 to 16.6 percent in 2010. However, it is unclear whether this relationship between financial crises and political polarization is causal and also the underlying mechanisms are not well understood.
Hungary had a severe household debt crisis in 2008 as many households borrowed in foreign currencies in the credit boom preceding the crisis. By 2008 as more than 60 percent of household debt was denominated in Swiss franc. In the wake of the crisis, the exchange rate unexpectedly depreciated by 30 percent, significantly increasing the debt burden of foreign currency borrowers.
Using zip code level data and exploiting variation in the share of foreign currency denominated loans, we show that foreign currency debt can explain approximately 25 percent of the rise of the populist far right. Narrative evidence suggests that this effect is mainly driven by a creditor-debtor conflict over who should bear the cost of adjustment to the crisis. Foreign currency borrowers demanded debt relief, while banks pursued repayment aggressively. In this dispute, the far-right populist party Jobbik campaigned on a variety of debt relief measures for foreign currency debtors. The far right also accused the incumbent government of being captured by the banking sector. The crisis thus affected the rhetoric and policies proposed by the far-right populist party.
IEA: Another paper you worked on studies how households adjust consumption and labour supply to a large revaluation of foreign currency-denominated household debt in Hungary. Can you briefly summarize your findings?
Győző: In this paper, which is joint with Judit Rariga and Emil Verner, we focus on the same household debt crisis and examine the consumption and labor supply response of households borrowing in foreign currencies. We find that foreign currency borrower households significantly decreased their consumption and spending relative to local currency debtors in the wake of the crisis, the estimated marginal propensity to consume out of the debt service shock is close to 1. Using detailed product-level information on expenditures, we can decompose the change in spending. The decline in spending is mainly driven by adjustment along the intensive margin, as households reduced quantities purchased but also paid lower average prices for the same items. Although we do no find signficant effect on labor supply on average, some households adjust to the crisis by taking jobs abroad and earning foreign currency income. Moreover, foreign currency debtor households increase home production, suggesting a shift in consumption from money-intensive to time-intensive goods.
IEA: Why is this research relevant today?
Győző: In many countries around the world, there has been a democratic backsliding in recent years along with the rise of populism. Even when populist or extremist parties are not part of government, they can shape policymaking indirectly by setting the agenda and exerting influence on the strategy of moderate parties. Several factors contributed to this shift in political preferences and economic shocks are certainly important in explaining this phenomenon. Understanding the role of household debt shocks on political outcomes and the underlying mechanisms of why debtors vote for populists may help to design better policies. Limiting risky borrowing during a credit boom and providing debt relief to distressed households during a crisis period may not only help to stimulate the economy but it can also lower the support for populist parties.
IEA: Why is it important for economic research to be diverse and inclusive?
Győző: I believe that with the help of economics, we can make the lives of ordinary people better. Economic research can shed light on problems as well as offer solutions to them, which can be used to design better policies. The economic research community can better identify and understand problems as well as answer them if its composition is diverse and inclusive and sensitive to different issues.