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Financial fragility of euro area households

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  • Ampudia, Miguel
  • van Vlokhoven, Has
  • Żochowski, Dawid

Abstract

Until recently, the lack of appropriate harmonized micro data covering both income and wealth has been the major obstacle in analyzing financial vulnerability of the household sector in the euro area. This data problem has been partially circumvented by the dissemination of the Household Finance and Consumption Survey (HFCS). Based on this unique data set, we put forward a stress testing method of household balance sheets in a consistent manner across euro area countries. To this end, we put forward a metric of distress which takes into account both the solvency and liquidity position of the household and demonstrate that this metric outperforms the most common metrics used in the literature, which do not take into account the households’ asset holdings. We calibrate this metric using the country level data on non-performing loan ratios and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euro-area households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Finally, we demonstrate that our framework could be used to assess some measures mitigating losses to the banks, such as engaging in the restructurings of loans that are at risk of defaulting.

Suggested Citation

  • Ampudia, Miguel & van Vlokhoven, Has & Żochowski, Dawid, 2016. "Financial fragility of euro area households," Journal of Financial Stability, Elsevier, vol. 27(C), pages 250-262.
  • Handle: RePEc:eee:finsta:v:27:y:2016:i:c:p:250-262
    DOI: 10.1016/j.jfs.2016.02.003
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    Cited by:

    1. Ampudia, Miguel & Pavlickova, Akmaral & Slacalek, Jiri & Vogel, Edgar, 2016. "Household heterogeneity in the euro area since the onset of the Great Recession," Journal of Policy Modeling, Elsevier, vol. 38(1), pages 181-197.
    2. Brunetti, M. & Ciciretti, R. & Djordjevic, Lj., 2016. "The determinants of household’s bank switching," Journal of Financial Stability, Elsevier, vol. 26(C), pages 175-189.
    3. Carpantier, Jean-Francois & Olivera, Javier & Van Kerm, Philippe, 2018. "Macroprudential policy and household wealth inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 262-277.
    4. repec:mes:emfitr:v:53:y:2017:i:11:p:2585-2608 is not listed on IDEAS
    5. Rodriguez-Palenzuela, Diego & Dées, Stéphane & Andersson, Malin & Bijsterbosch, Martin & Forster, Katrin & Zorell, Nico & Audoly, Richard & Buelens, Christian & Compeyron, Guillaume & Ferrando, Annali, 2016. "Savings and investment behaviour in the euro area," Occasional Paper Series 167, European Central Bank.
    6. repec:unt:jnapdj:v:24:y:2017:i:2:p:23-52 is not listed on IDEAS
    7. Philip Du Caju & François Rycx & Ilan Tojerow, 2015. "Unemployment Risk and Over-indebtedness A Micro-econometric Perspective," Working Papers CEB 15-046, ULB -- Universite Libre de Bruxelles.
    8. Gross, Marco & Población García, Francisco Javier, 2016. "Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households," Working Paper Series 1881, European Central Bank.
    9. Fève, Patrick & Garcia, Pablo & Sahuc, Jean-Guillaume, 2018. "State-dependent risk taking and the transmission of monetary policy shocks," Economics Letters, Elsevier, vol. 164(C), pages 10-14.
    10. Cristina OTTAVIANI & Daniela VANDONE, 2016. "Is Impulsivity a Mediator of the Relationship between Financial Literacy and Debt Decisions?," Departmental Working Papers 2016-06, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    11. International Monetary Fund, 2016. "Slovak Republic; Selected Issues," IMF Staff Country Reports 16/14, International Monetary Fund.
    12. Ph. Du Caju & Th. Roelandt & Chr. Van Nieuwenhuyze & M.-D. Zachary, 2014. "Household indebtedness : evolution and distribution," Economic Review, National Bank of Belgium, issue ii, pages 61-81, September.
    13. Gross, Marco & Población, Javier, 2017. "Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households," Economic Modelling, Elsevier, vol. 61(C), pages 510-528.
    14. Valentina Michelangeli & Mario Pietrunti, 2014. "A Microsimulation Model to evaluate Italian Households’ Financial Vulnerability," International Journal of Microsimulation, International Microsimulation Association, vol. 7(3), pages 53-79.
    15. Du Caju, Philip & Rycx, François & Tojerow, Ilan, 2016. "Unemployment risk and over-indebtedness," Working Paper Series 1908, European Central Bank.
    16. Giovanni D'Alessio & Stefano Iezzi, 2016. "Over-indebtedness in Italy: how widespread and persistent is it?," Questioni di Economia e Finanza (Occasional Papers) 319, Bank of Italy, Economic Research and International Relations Area.
    17. repec:bis:bisifc:46-14 is not listed on IDEAS
    18. H. Fraisse, 2017. "Household Debt Restructuring : The Re-default Effects of Debt Suspensions," Débats économiques et financiers 29, Banque de France.
    19. Katarzyna Bankowska & Pierre Lamarche & Guillaume Osier & Sébastien Pérez-Duarte, 2015. "Measuring household debt vulnerability in the euro area," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Indicators to support monetary and financial stability analysis: data sources and statistical methodologies, volume 39 Bank for International Settlements.
    20. Christophe André, 2016. "Household debt in OECD countries: stylised facts and policy issues," Chapters from NBP Conference Publications, Narodowy Bank Polski, Economic Research Department.
    21. repec:kap:empiri:v:45:y:2018:i:3:d:10.1007_s10663-017-9378-2 is not listed on IDEAS
    22. repec:nbp:nbpbik:v:48:y:2017:i:3:p:295-326 is not listed on IDEAS
    23. Beata Bierut, & Tomasz Chmielewski & Adam Głogowski, & Sławomir Zajączkowski & Andrzej Stopczyński, 2015. "Implementing Loan-To-Value and Debt-To-Income ratios: Learning from country experiences. The case of Poland," NBP Working Papers 212, Narodowy Bank Polski, Economic Research Department.

    More about this item

    Keywords

    Household indebtedness; Stress testing; Household finance; Financial stability;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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