Stress Testing Austrian Households

Over the past decades, household debt has increased sharply, both in absolute and relative terms, in almost all OECD countries. As the U.S. subprime crisis recently showed, even a relatively small number of indebted households can produce considerable turmoil if the sustainability of their debt is in question. The scope of aggregate data for analyzing these risks to financial stability is very limited, because it is neither possible to differentiate between households that hold debt and those that do not, nor is it possible to combine the data on household debt with data on their assets in a reasonable way. Therefore, many authorities concerned with financial stability are increasingly using microdata to analyze such types of financial stability risks. Combining different microdata sources, we assess financial stability risks arising from indebted households in Austria. We define a financial margin for indebted households and stress test each indebted household against a range of financial shocks (changes in interest rates, unemployment rate, asset prices, exchange rates and repayment vehicle yields).