A Framework to Assess Vulnerabilities Arising from Household Indebtedness Using Microdata
AbstractRising levels of household indebtedness have created concerns about the vulnerabilities of households to adverse economic shocks and the impact on financial stability. To assess these risks, the author presents a formal stress-testing framework that uses microdata to simulate how various economic shocks affect the distribution of the debt-service ratio (DSR) for the household sector. Data from an Ipsos Reid Canadian Financial Monitor survey are used to construct the actual DSR distribution for households. Changes in the distribution are then simulated using a macro scenario describing the evolution of some aggregate variables, and micro behavioural relationships; for example, to simulate credit growth for individual households, cross-sectional data are used to estimate debt-growth equations as a function of household income, interest rates and housing prices. The simulated distributions provide information on vulnerabilities in the household sector. The author also describes a combined methodology where changes in the probability of default on household loans are used as a metric to evaluate the quantitative impact of negative employment shocks on the resilience of households and loan losses at financial institutions.
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Bibliographic InfoPaper provided by Bank of Canada in its series Discussion Papers with number 12-3.
Length: 29 pages
Date of creation: 2012
Date of revision:
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Econometric and statistical methods; Financial stability;
Other versions of this item:
- Ramdane Djoudad, 2011. "A framework to assess vulnerabilities arising from household indebtedness using microdata," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Initiatives to address data gaps revealed by the financial crisis", Basel, 25-26 August 2010, volume 34, pages 151-168 Bank for International Settlements.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
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- Shubhasis Dey & Ramdane Djoudad & Yaz Terajima, 2008. "A Tool for Assessing Financial Vulnerabilities in the Household Sector," Bank of Canada Review, Bank of Canada, vol. 2008(Summer), pages 47-56.
- Ramdane Djoudad, 2009. "Simulations du ratio du service de la dette des consommateurs en utilisant des données micro," Working Papers 09-18, Bank of Canada.
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