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Borrowing in Foreign Currency: Austrian Households as Carry Traders

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  • Christian Beer
  • Steven Ongena
  • Marcel Peter

Abstract

Household borrowing in a foreign currency is a widespread phenomenon in Austria. Twelve percent of Austrian households report their housing loan to be denominated in either Swiss franc or Japanese yen for example. Yet, despite its importance, peculiar character, and immediate policy concerns, we know too little about the attitudes and characteristics of the households involved in this type of carry trade. We analyze a uniquely detailed financial wealth survey of 2,556 Austrian households to sketch a comprehensive profile of the attitudes and characteristics of the households involved. We employ both univariate tests and multivariate multinomial logit models. The survey data suggests that risk-loving, wealthy, and married households are more likely to take a housing loan in a foreign currency. High-income households are more likely to take a housing loan in general. These findings may partially assuage policy concerns about household default risk on foreign-currency housing loans.

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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2008-19.

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Length: 55 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:snb:snbwpa:2008-19

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Keywords: oreign currency borrowing; mortgages; banking sector; Austria; Swissfrancs;

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References

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  1. Cardak, Buly A. & Wilkins, Roger, 2009. "The determinants of household risky asset holdings: Australian evidence on background risk and other factors," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(5), pages 850-860, May.
  2. Joao Cocco & John Campbell, 2004. "Household Risk Management and Optimal Mortgage Choice," Econometric Society 2004 North American Winter Meetings, Econometric Society 646, Econometric Society.
  3. Martin Brown & Steven Ongena & Pinar Yesin, 2009. "Foreign Currency Borrowing by Small Firms," Working Papers, Swiss National Bank 2009-02, Swiss National Bank.
  4. Christian Beer & Peter Mooslechner & Martin Schürz & Karin Wagner, 2006. "Austrian Households’ Financial Wealth: An Analysis Based on Microeconomic Data," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 94–110.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(1), pages 1-48, February.
  6. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," CeRP Working Papers 54, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  7. Tamás Bartus, 2005. "Estimation of marginal effects using margeff," Stata Journal, StataCorp LP, StataCorp LP, vol. 5(3), pages 309-329, September.
  8. Campbell, John, 2006. "Household Finance," Scholarly Articles 3157877, Harvard University Department of Economics.
  9. George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, American Finance Association, vol. 58(6), pages 2667-2710, December.
  10. Aggarwal, Raj & Goodell, John W., 2009. "Markets and institutions in financial intermediation: National characteristics as determinants," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(10), pages 1770-1780, October.
  11. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(5), pages 858-869, May.
  12. Matti Keloharju & Mervi Niskanen, 2001. "Why Do Firms Raise Foreign Currency Denominated Debt? Evidence from Finland," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 7(4), pages 481-496.
  13. repec:diw:diwfin:diwfin05040 is not listed on IDEAS
  14. Ephraim Clark & Amrit Judge, 2008. "The Determinants of Foreign Currency Hedging: Does Foreign Currency Debt Induce a Bias?," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 14(3), pages 445-469.
  15. Gabriele Galati & Alexandra Heath & Patrick McGuire, 2007. "Evidence of carry trade activity," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, September.
  16. Paiella, Monica & Pozzolo, Alberto Franco, 2007. "Choosing Between Fixed and Adjustable Rate Mortgages," Economics & Statistics Discussion Papers, University of Molise, Dept. EGSeI esdp07033, University of Molise, Dept. EGSeI.
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