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Measuring the Covariance Risk of Consumer Debt Portfolios

Listed author(s):
  • Carlos Madeira
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    Consumer loan risk is hard to predict, since households are heterogeneous and suffer significant macro shocks. This work proposes a heterogeneous agents model of household credit risk with shocks to both labor income and credit access. Using the Chilean Household Finance Survey I simulate the default conditions of different households over distinct macro scenarios. I show that banks' loan portfolios have very different covariance risk in relation to macro events, with some banks being prone to high risk during recessions. Also, heterogeneity in covariance risk has a negative impact on loan amounts and the probability of receiving a loan.

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    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 793.

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    Date of creation: Nov 2016
    Handle: RePEc:chb:bcchwp:793
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    17. repec:fth:harver:1435 is not listed on IDEAS
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