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Is financial fragility a matter of illiquidity? An appraisal for Italian households

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  • Marianna Brunetti

    ()

  • Elena Giarda

    ()

  • Costanza Torricelli

    ()

Abstract

In this paper we investigate household financial fragility and assess the role played by the composition of the household portfolio besides standard determinants of this condition (e.g. income, indebtedness, age, gender, financial literacy). We take the case of Italy, given the very peculiar portfolio composition (high level of housing and low level of indebtedness and portfolio diversification) and provide two main contributions. First, we propose a novel definition of financial fragility. Second, based on this new measure, we use data from the 1998-2010 Bank of Italy Survey on Household Income and Wealth to investigate the determinants of this condition. Our results confirm most usual markers of financial fragility and additionally highlight the role of homeownership, which is not related to the presence of mortgages but it is rather connected to specific socio-demographic features such as age and marital status.

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Bibliographic Info

Paper provided by Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi" in its series Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) with number 12061.

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Length: pages 25
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:mod:wcefin:12061

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Keywords: financial fragility; household portfolios; housing;

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References

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  1. Marcelo Fuenzalida & Jaime Ruiz-Tagle, 2011. "Household Financial Vulnerability," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 10, pages 299-326 Central Bank of Chile.
  2. Elena Giarda, 2010. "Persistency of financial distress amongst Italian households: evidence from dynamic probit models," Quaderni di Dipartimento 3, Department of Statistics, University of Bologna.
  3. 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.
  4. Georgarakos, Dimitris & Lojschová, Adriana & Ward-Warmedinger, Melanie, 2010. "Mortgage indebtedness and household financial distress," Working Paper Series 1156, European Central Bank.
  5. Holger Kraft & Claus Munk, 2011. "Optimal Housing, Consumption, and Investment Decisions over the Life Cycle," Management Science, INFORMS, vol. 57(6), pages 1025-1041, June.
  6. Jappelli Tullio & Pagano Marco & Di Maggio Marco, 2013. "Households' indebtedness and financial fragility," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 26-35, January.
  7. McCarthy, Yvonne, 2011. "Behavioural characteristics and financial distress," Working Paper Series 1303, European Central Bank.
  8. Mizuho Kida, 2009. "Financial vulnerability of mortgage-indebted households in New Zealand - evidence from the Household Economic Survey," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 5-12, March.
  9. Irina A. Telyukova & Makoto Nakajima, 2011. "Reverse Mortgage Loans: A Quantitative Analysis," 2011 Meeting Papers 387, Society for Economic Dynamics.
  10. Olsen, Randall & Dunn, Lucia, 2010. "Housing price declines and household balance sheets," Economics Letters, Elsevier, vol. 107(2), pages 161-164, May.
  11. Marianna Brunetti & Costanza Torricelli, 2010. "Population age structure and household portfolio choices in Italy," The European Journal of Finance, Taylor & Francis Journals, vol. 16(6), pages 481-502.
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Cited by:
  1. Chiara Pederzoli & Costanza Torricelli, 2013. "Efficiency and unbiasedness of corn futures markets: New evidence across the financial crisis," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13091, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  2. Laura Bartiloro & Cristiana Rampazzi, 2013. "Italian households’ saving and wealth during the crisis," Questioni di Economia e Finanza (Occasional Papers) 148, Bank of Italy, Economic Research and International Relations Area.
  3. Elisabetta Gualandri & Valeria Venturelli, 2013. "The financing of Italian firms and the credit crunch: findings and exit strategies," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13101, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  4. Stefano Cosma & Elisabetta Gualandri, 2013. "The sovereign debt crisis: the impact on the intermediation model of Italian banks," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13102, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".

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