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Risk Buffer Profiles of Foreign Currency Mortgage Holders

Author

Listed:
  • Nicolas Albacete

    () (Oesterreichische Nationalbank, Economic Analysis Division)

  • Pirmin Fessler

    () (Oesterreichische Nationalbank, Economic Analysis Division)

  • Martin Schürz

    () (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

In Austria, the share of foreign currency mortgages in total household debt has been increasing since the late 1990s. Today about one-third of household credit debt is denominated in foreign currency, mostly in Swiss francs. A major issue with regard to the resulting implications for financial stability is the vulnerability of indebted households. Do foreign currency borrowers opt for foreign currency loans because they cannot afford a given loan in domestic currency? Or are foreign currency borrowers just less risk averse and better able to absorb risks than their domestic currency counterparts? We employ a subsample of the Household Survey on Housing Wealth 2008 for the first borrower analysis of this kind for Austria. Using simple linear regression techniques may be misleading given the heterogeneity of borrowers’ characteristics and the heterogeneity of differences along risk buffers. Hence we estimate conditional counterfactual distributions in order to calculate the differences in terms of risk buffers between foreign currency borrowers and their domestic currency counterparts over the entire marginal distributions of the risk buffers. We find that foreign currency borrowers have substantially higher risk buffers than their domestic currency counterparts and therefore reject the hypothesis that most of them have loans in foreign currency because they would not be able to afford the same amounts in domestic currency on account of the higher interest rate burden.

Suggested Citation

  • Nicolas Albacete & Pirmin Fessler & Martin Schürz, 2012. "Risk Buffer Profiles of Foreign Currency Mortgage Holders," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 23, pages 58-71.
  • Handle: RePEc:onb:oenbfs:y:2012:i:23:b:2
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    References listed on IDEAS

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    1. Victor Chernozhukov & Iván Fernández‐Val & Blaise Melly, 2013. "Inference on Counterfactual Distributions," Econometrica, Econometric Society, vol. 81(6), pages 2205-2268, November.
    2. Victor Chernozhukov & Iv·n Fern·ndez-Val & Alfred Galichon, 2010. "Quantile and Probability Curves Without Crossing," Econometrica, Econometric Society, vol. 78(3), pages 1093-1125, May.
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    5. Pirmin Fessler & Peter Mooslechner & Martin Schürz & Karin Wagner, 2009. "Housing Wealth of Austrian Households," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 104-124.
    6. Beer, Christian & Ongena, Steven & Peter, Marcel, 2010. "Borrowing in foreign currency: Austrian households as carry traders," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2198-2211, September.
    7. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    8. Nathalie Girouard & Mike Kennedy & Christophe André, 2006. "Has the Rise in Debt Made Households More Vulnerable?," OECD Economics Department Working Papers 535, OECD Publishing.
    9. Nicolas Albacete & Pirmin Fessler, 2010. "Stress Testing Austrian Households," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 19, pages 72-91.
    10. Roger Koenker & Zhijie Xiao, 2002. "Inference on the Quantile Regression Process," Econometrica, Econometric Society, vol. 70(4), pages 1583-1612, July.
    11. repec:onb:oenbwp:y:2010:i:20:b:1 is not listed on IDEAS
    12. Nicolas Albacete, 2012. "Multiple Imputation in the Austrian Household Survey on Housing Wealth," Working Papers 176, Oesterreichische Nationalbank (Austrian Central Bank).
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    Cited by:

    1. repec:bis:bisifc:46-12 is not listed on IDEAS
    2. repec:onb:oenbfi:y:2017:i:2:b:1 is not listed on IDEAS
    3. Nicolas Albacete & Judith Eidenberger & Gerald Krenn & Peter Lindner & Michael Sigmund, 2014. "Risk-Bearing Capacity of Households – Linking Micro-Level Data to the Macroprudential Toolkit," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 27, pages 95-110.
    4. repec:onb:oenbfs:y:2017:i:33:b:1 is not listed on IDEAS
    5. Nicolas Albacete & Peter Lindner, 2013. "Household Vulnerability in Austria – A Microeconomic Analysis Based on the Household Finance and Consumption Survey," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 25, pages 57-73.
    6. Christian Beer & Karin Wagner, 2012. "Housing Cost Burden of Austrian Households: Results of a Recent Survey," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 78-89.
    7. Ulrich Gunter & Gerald Krenn & Michael Sigmund, 2013. "Macroeconomic, Market and Bank-Specific Determinants of the Net Interest Margin in Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 25, pages 87-101.

    More about this item

    Keywords

    Foreign currency borrowing; mortgages; risk; Austria; Swiss francs; household indebtedness;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D39 - Microeconomics - - Distribution - - - Other
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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