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Risk Buffer Profiles of Foreign Currency Mortgage Holders

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Author Info

  • Nicolas Albacete

    ()
    (Oesterreichische Nationalbank, Economic Analysis Division)

  • Pirmin Fessler

    ()
    (Oesterreichische Nationalbank, Economic Analysis Division)

  • Martin Schürz

    ()
    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

In Austria, the share of foreign currency mortgages in total household debt has been increasing since the late 1990s. Today about one-third of household credit debt is denominated in foreign currency, mostly in Swiss francs. A major issue with regard to the resulting implications for financial stability is the vulnerability of indebted households. Do foreign currency borrowers opt for foreign currency loans because they cannot afford a given loan in domestic currency? Or are foreign currency borrowers just less risk averse and better able to absorb risks than their domestic currency counterparts? We employ a subsample of the Household Survey on Housing Wealth 2008 for the first borrower analysis of this kind for Austria. Using simple linear regression techniques may be misleading given the heterogeneity of borrowers’ characteristics and the heterogeneity of differences along risk buffers. Hence we estimate conditional counterfactual distributions in order to calculate the differences in terms of risk buffers between foreign currency borrowers and their domestic currency counterparts over the entire marginal distributions of the risk buffers. We find that foreign currency borrowers have substantially higher risk buffers than their domestic currency counterparts and therefore reject the hypothesis that most of them have loans in foreign currency because they would not be able to afford the same amounts in domestic currency on account of the higher interest rate burden.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Finanzmarkt/Financial-Stability-Report/2012/Financial-Stability-Report-23/chapters/fsr_23_special_topics_02_tcm16-249137.pdf
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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Financial Stability Report.

Volume (Year): (2012)
Issue (Month): 23 ()
Pages: 58-71

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Handle: RePEc:onb:oenbfs:y:2012:i:23:b:2

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Related research

Keywords: Foreign currency borrowing; mortgages; risk; Austria; Swiss francs; household indebtedness;

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References

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  1. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
  2. Victor Chernozhukov & Ivan Fernandez-Val & Alfred Galichon, 2010. "Quantile and Probability Curves without Crossing," Sciences Po publications info:hdl:2441/5rkqqmvrn4t, Sciences Po.
  3. repec:onb:oenbwp:y:2010:i:20:b:1 is not listed on IDEAS
  4. Nicolas Albacete, 2012. "Multiple Imputation in the Austrian Household Survey on Housing Wealth," Working Papers 176, Oesterreichische Nationalbank (Austrian Central Bank).
  5. Pirmin Fessler & Peter Mooslechner & Martin Schürz & Karin Wagner, 2009. "Housing Wealth of Austrian Households," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 104–124.
  6. Christian Beer & Steven Ongena & Marcel Peter, 2008. "Borrowing in Foreign Currency: Austrian Households as Carry Traders," Working Papers 2008-19, Swiss National Bank.
  7. Sergio Firpo & Nicole M. Fortin & Thomas Lemieux, 2009. "Unconditional Quantile Regressions," Econometrica, Econometric Society, vol. 77(3), pages 953-973, 05.
  8. Imbens, Guido W. & Wooldridge, Jeffrey M., 2008. "Recent Developments in the Econometrics of Program Evaluation," IZA Discussion Papers 3640, Institute for the Study of Labor (IZA).
  9. Victor Chernozhukov & Ivan Fernandez-Val & Blaise Melly, 2009. "Inference on counterfactual distributions," CeMMAP working papers CWP09/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  10. Roger Koenker & Zhijie Xiao, 2002. "Inference on the Quantile Regression Process," Econometrica, Econometric Society, vol. 70(4), pages 1583-1612, July.
  11. Nathalie Girouard & Mike Kennedy & Christophe André, 2006. "Has the Rise in Debt Made Households More Vulnerable?," OECD Economics Department Working Papers 535, OECD Publishing.
  12. Nicolas Albacete & Pirmin Fessler, 2010. "Stress Testing Austrian Households," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 19, pages 72-91.
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Cited by:
  1. Christian Beer & Karin Wagner, 2012. "Housing Cost Burden of Austrian Households: Results of a Recent Survey," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 78–89.
  2. Ulrich Gunter & Gerald Krenn & Michael Sigmund, 2013. "Macroeconomic, Market and Bank-Specific Determinants of the Net Interest Margin in Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 25, pages 87-101.
  3. Nicolas Albacete & Peter Lindner, 2013. "Household Vulnerability in Austria – A Microeconomic Analysis Based on the Household Finance and Consumption Survey," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 25, pages 57-73.

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