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Understanding Household Vulnerabilities in Portugal

Author

Listed:
  • Frederico Mira Godinho
  • Orchi Modhurima

Abstract

Recent high inflation and rising interest rates can be expected to increase the risk of household financial vulnerabilities, tightening financial capacity and raising credit risk. We develop a household stress-testing framework using microdata to identify pockets of vulnerability and associated bank exposures in Portugal under potential macro-financial shocks by computing household-level vulnerability indicators as well as bank-level indicators to measure the corresponding exposure and potential losses. Particular attention is given to structural features of the Portuguese economy, especially in scenario design and shock specification. The aggregate impact on vulnerability measures remains contained under most individual shocks and the adverse scenario. The income shock has stronger effects on most indicators, whereas the real estate shock notably increases banks’ expected losses from vulnerable households. Households in the lowest income quintiles exhibit a bigger increase in vulnerability, both in the adverse scenario and under specific shocks.

Suggested Citation

  • Frederico Mira Godinho & Orchi Modhurima, 2025. "Understanding Household Vulnerabilities in Portugal," Working Papers w202522, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202522
    as

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    File URL: https://www.bportugal.pt/sites/default/files/documents/2025-12/WP202522.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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