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Household loan loss risk in Finland – estimations and simulations with micro data

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Author Info

  • Herrala, Risto

    ()
    (Bank of Finland Monetary Policy and Research/Monitoring)

  • Kauko, Karlo

    ()
    (Bank of Finland Research)

Abstract

This discussion paper presents a microsimulation model of household distress. We use logit analysis to estimate the extent to which a household’s risk of being financially distressed depends on net income after tax and loan servicing costs. The impact of assumed macroeconomic shocks on this net income concept is calculated at the household level. The microsimulation model is used to simulate both the number of distressed households and their aggregate debt in various macroeconomic scenarios. The simulations indicate that household credit risks to banks are relatively well contained.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0705netti.pdf
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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 5/2007.

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Length: 44 pages
Date of creation: 08 May 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_005

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: financial stability; indebtedness; micro simulations; households;

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References

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  1. Cox, Donald & Jappelli, Tullio, 1993. "The Effect of Borrowing Constraints on Consumer Liabilities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 197-213, May.
  2. John V. Duca & Stuart S. Rosenthal, 1993. "Borrowing constraints, household debt, and racial discrimination in loan markets," Research Paper 9312, Federal Reserve Bank of Dallas.
  3. Merxe Tudela & Garry Young, 2005. "The determinants of household debt and balance sheets in the United Kingdom," Bank of England working papers 266, Bank of England.
  4. Ana Del-Rí­o & Garry Young, 2005. "The determinants of unsecured borrowing: evidence from the British Household Panel Survey," Bank of England working papers 263, Bank of England.
  5. Brookes, Martin & Dicks, Mike & Pradhan, Mahmood, 1994. "An empirical model of mortgage arrears and repossessions," Economic Modelling, Elsevier, vol. 11(2), pages 134-144, April.
  6. Nuno C. Martins & Ernesto Villanueva, 2003. "The Impact of Interest-rate Subsidies on Long-term Household Debt: Evidence from a Large Program," Working Papers w200314, Banco de Portugal, Economics and Research Department.
  7. Ana del Río & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Banco de Espa�a Working Papers 0512, Banco de Espa�a.
  8. Sarah Brown & Karl Taylor, 2005. "Household Debt and Financial Assets: Evidence from Great Britain, Germany and the United States," Discussion Papers in Economics 05/5, Department of Economics, University of Leicester.
  9. Heikki Kauppi & Pentti Saikkonen, 2008. "Predicting U.S. Recessions with Dynamic Binary Response Models," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 777-791, November.
  10. Jappelli, Tullio, 1990. "Who Is Credit Constrained in the U.S. Economy?," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 219-34, February.
  11. Sarah Brown & Gaia Garino & Karl Taylor & Stephen Wheatley Price, 2005. "Debt and Financial Expectations: An Individual- and Household-Level Analysis," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 100-120, January.
  12. Sarah Brown & Karl Taylor, 2008. "Household debt and financial assets: evidence from Germany, Great Britain and the USA," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 615-643.
  13. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers) 454, Bank of Italy, Economic Research and International Relations Area.
  14. Orla May & Merxe Tudela, 2005. "When is mortgage indebtedness a financial burden to British households? A dynamic probit approach," Bank of England working papers 277, Bank of England.
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Citations

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Cited by:
  1. Petr Hlavac & Petr Jakubik & Kamil Galuscak, 2013. "Household stress tests using microdata," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2012/2013, chapter 0, pages 113-119 Czech National Bank, Research Department.
  2. Meral Karasulu, 2008. "Stresstesting Household Debt in Korea," IMF Working Papers 08/255, International Monetary Fund.
  3. Thorvardur Tjörvi Ólafsson & Karen Á. Vignisdóttir, 2012. "Households’ position in the financial crisis in Iceland. Analysis based on a nationwide household-level database," Economics wp59, Department of Economics, Central bank of Iceland.
  4. Felipe Martínez & Rodrigo Cifuentes & Carlos Madeira & Rubén Poblete-Cazenave, 2013. "Measurement of Household Financial Risk with the Survey of Household Finances," Working Papers Central Bank of Chile 682, Central Bank of Chile.
  5. Kamil Galuscak & Petr Hlavac & Petr Jakubik, 2014. "Stress Testing the Private Household Sector Using Microdata," Working Papers 2014/02, Czech National Bank, Research Department.
  6. Herrala, Risto, 2009. "Credit crunch? An empirical test of cyclical credit policy," Research Discussion Papers 10/2009, Bank of Finland.
  7. Meng, Channarith, 2014. "Consumer Loans in Cambodia: Implications on Banking Stability," MPRA Paper 54131, University Library of Munich, Germany.
  8. 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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