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Household Financial Vulnerability

In: Financial Stability, Monetary Policy, and Central Banking

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Author Info

  • Marcelo Fuenzalida

    (Columbia University)

  • Jaime Ruiz-Tagle

    (Department of Economics, Universidad de Chile)

Abstract

Households’ financial vulnerability determines households’ default risk. Financial stability could be affected by households’ behavior under stressful macroeconomic conditions. Households’ financial vulnerability depends on their indebtedness levels and on the fragility of their income sources to be able to fulfill their obligations. The main source of households’ uncertainty comes from labor income generation, which is critically determined by unemployment. Heterogeneity of indebtedness levels and of income uncertainty calls for microeconomic analysis. This paper uses panel data survival analysis to estimate the probability of job loss at the individual level. Using semi-parametric methods, a significant heterogeneity is found for the impact of aggregate unemployment among individuals. Monte Carlo simulations are run to assess households financial stress and then to estimate aggregate debt at risk under high unemployment rate scenarios. Since the majority of debt is held by those with lower levels of income vulnerability, it is found that financial stability is not significantly affected by high unemployment levels.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

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This chapter was published in: Rodrigo Alfaro (ed.) Financial Stability, Monetary Policy, and Central Banking, , chapter 10, pages 299-326, 2011.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v15c10pp299-326.

Handle: RePEc:chb:bcchsb:v15c10pp299-326

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  1. Guy Debelle, 2004. "Macroeconomic implications of rising household debt," BIS Working Papers 153, Bank for International Settlements.
  2. Paulo Cox & Eric Parrado & Jaime Ruiz-Tagle, 2006. "Distribution of Assets, Debt, and Income of Chilean Households," Working Papers Central Bank of Chile 388, Central Bank of Chile.
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Cited by:
  1. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2012. "Is financial fragility a matter of illiquidity? An appraisal for Italian households," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 12061, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  2. Tom Bilston & David Rodgers, 2013. "A Model for Stress Testing Household Lending in Australia," RBA Bulletin, Reserve Bank of Australia, pages 27-38, December.

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