Financial Fragility of Euro Area Households

41 Pages Posted: 23 Oct 2014

See all articles by Miguel Ampudia

Miguel Ampudia

Boston University - Department of Economics

Has van Vlokhoven

Stockholm University - Institute for International Economic Studies (IIES)

Dawid Żochowski

European Central Bank

Date Written: October 15, 2014

Abstract

We 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 euro area 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 bottlenecks in judicial procedures may significantly increase losses facing banks. Finally, we demonstrate that our framework could be used for macroprudential purposes, in particular for the calibration of country level loan-to-value ratio caps.

Keywords: D10, D14, G21

JEL Classification: household indebtedness, stress testing, household finance, financial stability

Suggested Citation

Ampudia, Miguel and van Vlokhoven, Has and Żochowski, Dawid, Financial Fragility of Euro Area Households (October 15, 2014). ECB Working Paper No. 1737. Available at SSRN: https://ssrn.com/abstract=2510422

Miguel Ampudia (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

Has Van Vlokhoven

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

Dawid Żochowski

European Central Bank ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
78
Abstract Views
481
rank
315,175
PlumX Metrics