IDEAS home Printed from https://ideas.repec.org/p/eea/boewps/wp2017-4.html
   My bibliography  Save this paper

The financial fragility of Estonian households: Evidence from stress tests on the HFCS microdata

Author

Listed:
  • Tairi Room

    ()

  • Jaanika Merikull

    ()

Abstract

This paper analyses the financial fragility of the Estonian household sector using microdata from the Household Finance and Consumption Survey (HFCS). We use a stress-testing framework where the probability of default is evaluated on the basis of the financial margin (i.e. the ability to service debt from current income) and the availability of financial buffers. The HFCS data from household interviews are complemented with information from administrative registers. This lets us evaluate and compare measures of financial vulnerability that draw on data from different sources. We derive a set of indicators to identify households that are financially distressed and analyse the sensitivity of financial sector loan losses to adverse shocks. The stress-test elasticities are assessed separately for three standardised negative macroeconomic shocks: a rise in interest rates, an increase in the unemployment rate, and a fall in real estate prices. In addition, we evaluate the impact of a simultaneous shock mimicking the dynamics of these three variables during the Great Recession. It is found that: (1) despite there being a lot of households with financial difficulties, the risks for banks from the household sector are limited; (2) financial fragility is strongly negatively related to income; (3) the loan default rate of households is most sensitive to shocks to the unemployment rate and the interest rate, while the loan losses of banks are affected most by real estate price shocks; and (4) compared with the survey data, the information collected from administrative sources points to higher household default rates and larger bank losses.

Suggested Citation

  • Tairi Room & Jaanika Merikull, 2017. "The financial fragility of Estonian households: Evidence from stress tests on the HFCS microdata," Bank of Estonia Working Papers wp2017-4, Bank of Estonia, revised 25 May 2017.
  • Handle: RePEc:eea:boewps:wp2017-4
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.23656/25045520/42017/0142
    Download Restriction: no

    More about this item

    Keywords

    household financial fragility; stress-testing; household finance and consumption survey; Estonia; measurement error in household surveys;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eea:boewps:wp2017-4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peeter Luikmel). General contact details of provider: http://edirc.repec.org/data/epgovee.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.