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Borrowing in foreign currency: Austrian households as carry traders

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Author Info

  • Beer, Christian
  • Ongena, Steven
  • Peter, Marcel

Abstract

Household borrowing in a foreign currency is a widespread phenomenon in Austria. Thirteen percent of Austrian households report their housing loan to be denominated in foreign currency, mostly Swiss franc. Yet, despite its importance, peculiar character, and acute policy concerns, we know little about the attitudes and characteristics of the households involved in this type of carry trade. We analyze a uniquely detailed financial wealth survey of 2556 Austrian households to sketch a comprehensive profile of the attitudes and characteristics of the households involved. We employ both univariate tests and multivariate multinomial logit models. The survey data suggest that risk seeking, affluent, and married households are more likely to take a housing loan in a foreign currency. Financially literate or high-income households are more likely to take a housing loan in general. These findings partially assuage policy concerns about household default risk on foreign-currency housing loans or household retirement security.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 9 (September)
Pages: 2198-2211

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:9:p:2198-2211

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Foreign currency borrowing Mortgages Banking sector Austria Swiss francs;

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References

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  1. Martin Brown & Steven Ongena & Pinar Yesin, 2009. "Foreign Currency Borrowing by Small Firms," Working Papers 2009-02, Swiss National Bank.
  2. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, 08.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  4. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: the Roles of Planning, Financial Literacy, and Housing Wealth," NBER Working Papers 12585, National Bureau of Economic Research, Inc.
  5. Ephraim Clark & Amrit Judge, 2008. "The Determinants of Foreign Currency Hedging: Does Foreign Currency Debt Induce a Bias?," European Financial Management, European Financial Management Association, vol. 14(3), pages 445-469.
  6. repec:ltr:wpaper:2008.05 is not listed on IDEAS
  7. Cardak, Buly A. & Wilkins, Roger, 2009. "The determinants of household risky asset holdings: Australian evidence on background risk and other factors," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 850-860, May.
  8. Joao Cocco & John Campbell, 2004. "Household Risk Management and Optimal Mortgage Choice," Econometric Society 2004 North American Winter Meetings 646, Econometric Society.
  9. Gabriele Galati & Alexandra Heath & Patrick McGuire, 2007. "Evidence of carry trade activity," BIS Quarterly Review, Bank for International Settlements, September.
  10. Christian Beer & Peter Mooslechner & Martin Schürz & Karin Wagner, 2006. "Austrian Households’ Financial Wealth: An Analysis Based on Microeconomic Data," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 94–110.
  11. Tamás Bartus, 2005. "Estimation of marginal effects using margeff," Stata Journal, StataCorp LP, vol. 5(3), pages 309-329, September.
  12. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 858-869, May.
  13. repec:diw:diwfin:diwfin05040 is not listed on IDEAS
  14. Matti Keloharju & Mervi Niskanen, 2001. "Why Do Firms Raise Foreign Currency Denominated Debt? Evidence from Finland," European Financial Management, European Financial Management Association, vol. 7(4), pages 481-496.
  15. Aggarwal, Raj & Goodell, John W., 2009. "Markets and institutions in financial intermediation: National characteristics as determinants," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1770-1780, October.
  16. Paiella, Monica & Pozzolo, Alberto Franco, 2007. "Choosing Between Fixed and Adjustable Rate Mortgages," Economics & Statistics Discussion Papers esdp07033, University of Molise, Dept. EGSeI.
  17. George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, vol. 58(6), pages 2667-2710, December.
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