Debt Moratorium: Theory and Evidence

This project provides theoretical, quantitative and empirical explanations on the effects of debt moratorium policies, which stipulates the suspension of payments during stress episodes, for households, businesses and the sovereign. The theory predicts an increase in loan rates for non-stressed agents and a decline in rates for stressed agents while loan amounts depend on demand and supply elasticities. To empirically corroborate these findings and using both Colombia and Belgium as case study at the onset of the 2020 pandemic, we conduct a regression discontinuity design and compare the lending behavior of banks to firms and households that barely met and missed the criteria of receiving the treatment and investigate how real variables such as investment and employment as well as financial variables such as rates and quantities on business loans and mortgages are affected. We finally shed quantitative insights on macroeconomic and distributional effects of debt moratorium policies to complement our empirical analysis.