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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.bof.fi/NR/rdonlyres/E5901F7E-B54D-4109-A104-206E364A0638/0/0705netti.pdf
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Publisher 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

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: financial stability; indebtedness; micro simulations; households;

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Find related papers by JEL classification:
D14 - Microeconomics - - Household Behavior - - - Personal Finance
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
R29 - Urban, Rural, and Regional Economics - - Household Analysis - - - Other

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References listed on IDEAS
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  1. Nuno C. Martins & Ernesto Villanueva, 2003. "The Impact of Interest-rate Subsidies on Long-term Household Debt: Evidence from a Large Program," Economics Working Papers 713, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Ana del Río & Garry Young, 2005. "The determinants of unsecured borrowing: evidence from the British household panel survey," Banco de España Working Papers 0511, Banco de España. [Downloadable!]
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  5. 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. [Downloadable!]
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  6. Merxe Tudela & Garry Young, . "The determinants of household debt and balance sheets in the United Kingdom," Bank of England working papers 266, Bank of England. [Downloadable!]
  7. Donald Cox & Tullio Japelli, 1993. "The Effect Of Borrowing Constraints On Consumer Liabilities," Boston College Working Papers in Economics 228, Boston College Department of Economics.
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  8. Sarah Brown & Gaia Garino & Karl Taylor & Stephen Wheatley Price, 2005. "Debt and Financial Expectations: An Individual- and Household-Level Analysis," Economic Inquiry, Oxford University Press, vol. 43(1), pages 100-120, January. [Downloadable!] (restricted)
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  9. Ana del Río & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Banco de España Working Papers 0512, Banco de España. [Downloadable!]
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  10. Silvia Magri, 2002. "Italian households' debt: determinants of demand and supply," Temi di discussione (Economic working papers) 454, Bank of Italy, Economic Research Department. [Downloadable!]
  11. Gianni La Cava & John Simon, 2003. "A Tale of Two Surveys: Household Debt and Financial Constraints in Australia," RBA Research Discussion Papers rdp2003-08, Reserve Bank of Australia. [Downloadable!]
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