Fisher Dynamics, Monetary Policy, and Household Indebtedness

Growth in household debt‐to‐income ratios reflects nominal debt changes or “Fisher dynamics” due to interest income and expenses, real income growth, and inflation. Using two decades of microdata on all Norwegian households, we decompose these channels' roles in how debt‐to‐income evolves over time and in response to monetary policy shocks. On average, debt changes outsize Fisher dynamics, except among highly leveraged households. After interest rate hikes, the channels pull in opposite directions, but the debt changes dominate, so debt‐to‐income ratios decline. This holds across subgroups, including highly indebted households, recent movers, and those facing liquidity constraints or high unemployment risk.