Household Loan Loss Risk in Finland - Estimations and Simulations With Micro Data

Herrala, Risto; Kauko, Karlo

doi:10.2139/ssrn.1008512

Cited by 57 publications

(26 citation statements)

References 22 publications

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“…Similar discrepancies are found in household budget surveys for other countries, e.g. Herrala and Kauko (2007) report it for Finland, Faraqui (2006) for Canada and Simigiannis and Tzamourani (2006) for Greece. A typical solution adopted in other countries is to re-weight the population of debtors to arrive at representative shares (e.g.…”

Section: Datasupporting

confidence: 75%

“…Calvet, Campbell and Sodini (2009) develop measures of household's financial sophistication to explain a set of three investment mistakes: under diversification, risky share inertia, and the disposition effect. Similarly, Herrala and Kauko (2007) deliver an approach to capture the household distress by formulating an operational logit estimation valid under realistic assumptions about the "minimum satisfactory" costs of living. Both these approaches, however, focus on estimating "a" parameter.…”

Section: Literature Reviewmentioning

confidence: 99%

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Breeding one's own sub-prime crisis: The labour market effects on financial system stability

Daras¹,

Tyrowicz²

2011

Economic Systems

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Crisis may spread through economy via the propagating mechanisms of the labour market -households becoming delinquent due to an initial unemployment shock may be unable to continue servicing obligations versus the financial system. With large debts -e.g. mortgages -such defaults pose a threat to financial system stability. In this paper we use the Polish household budget surveys to simulate the impact of changes in the labour market status of household members on the ability of the household to service its mortgage payments. The simulation results are subsequently aggregated to facilitate a macro-level interpretation of the findings. We simulate various scenarios of labour market deterioration. Finally, we also introduce in the simulations a policy instrument providing, in a fiscally neutral manner, additional stability to the financial system. Based on robustness checks, the findings seem to be reliable. The results suggest that even with shares of debtors among consumers as low as in Poland, the propagation mechanism may indeed result in considerable threat, while the fiscally neutral instrument is effective and well-suited to addressed in providing additional, stability to the financial system.

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Section: Datasupporting

confidence: 75%

Section: Literature Reviewmentioning

confidence: 99%

Breeding one's own sub-prime crisis: The labour market effects on financial system stability

Daras¹,

Tyrowicz²

2011

Economic Systems

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“…They also use household budget survey data which suffers from problems of representativeness and lacks coverage of many financial assets. Herrala and Kauko (2007) using data from a survey on households' income in Finland find that following an extreme adverse scenario which combines shocks to house prices, unemployment rates and interest rates the percentage of households in distress increases from 13.9 to 20.9 percent. Beck, Kibuuka and Tiongson (2010) bring a multi-country dimension to the fore by analysing households' debt burden in some Eastern European and Central Asian countries.…”

Section: Ecb Working Paper 1737 Ocotber 2014mentioning

confidence: 99%

Financial fragility of euro area households

Ampudia

Vlokhoven

Żochowski

2016

Journal of Financial Stability

122

119

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The HFCN collects household-level data on households' fi nances and consumption in the euro area through a harmonised survey. The HFCN aims at studying in depth the micro-level structural information on euro area households' assets and liabilities. The objectives of the network are: Terms of use: Documents in EconStor may1) understanding economic behaviour of individual households, developments in aggregate variables and the interactions between the two;2) evaluating the impact of shocks, policies and institutional changes on household portfolios and other variables;3) understanding the implications of heterogeneity for aggregate variables; 4) estimating choices of different households and their reaction to economic shocks; 5) building and calibrating realistic economic models incorporating heterogeneous agents; 6) gaining insights into issues such as monetary policy transmission and fi nancial stability.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB), Pirmin Fessler (Oesterreichische Nationalbank), Michalis Haliassos (Goethe University Frankfurt), Tullio Jappelli (University of Naples Federico II), Sébastien PérezDuarte (ECB), Jiri Slacalek (ECB), Federica Teppa (De Nederlandsche Bank), Peter Tufano (Oxford University) and Philip Vermeulen (ECB).The paper is released in order to make the results of HFCN research generally available, in preliminary form, to encourage comments and suggestions prior to fi nal publication. The views expressed in the paper are the author's own and do not necessarily refl ect those of the ESCB. Acknowledgements AbstractWe propose a novel framework to identify distressed households by taking account of both the solvency and the liquidity situation of an individual household. Using the data from the Household Finance and Consumption Survey and the country-level data on non-performing loans we calibrate our metric of distress and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euroarea households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Furthermore, while losses given default as calculated using our framework are low, they are sensitive to house prices changes. Hence, any factors hindering the seizure of the collateral or lowering its value, such as inefficient legal systems, moratoria on foreclosures or bottle...

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“…Based on such surveys the literature analyzes the household financial vulnerability. Herrala and Kauko (2007) use the Finland financial survey to microsimulate a model of household distress to find that households risk are low. In the case of Britain households, Del Río and Young (2005) find that the main determinant of debt problems is the unsecured debt-income ratio.…”

Section: Literature Reviewmentioning

confidence: 99%