How Does Financial Vulnerability Amplify Housing and Credit Shocks?

34 Pages Posted: 15 May 2020 Last revised: 18 Nov 2021

See all articles by Cyril Couaillier

Cyril Couaillier

Banque de France; European Central Bank (ECB)

Valerio Scalone

Banque de France

Date Written: April 1, 2020


Households’ financial vulnerability substantially affects the propagation of financial shocks. Whether those shocks originate in the housing sector or in the credit sector is key to determine their state effect. Through the lens of an empirical non-linear macroeconomic model, we study how the impulse responses of housing and credit shocks vary according to the evolution households’ debt burden. Under high vulnerability, only housing shocks are amplified and their state effect is in line with economic theory. Conversely, expansionary credit supply shocks have more effect when vulnerability is low, whereas their effect turns strongly recessionary when vulnerability is high.

Keywords: Financial Vulnerability, Macroprudential Policy, non-linear Models, Housing, Credit

JEL Classification: C32; E51; G01; G51

Suggested Citation

Couaillier, Cyril and Scalone, Valerio, How Does Financial Vulnerability Amplify Housing and Credit Shocks? (April 1, 2020). Available at SSRN: or

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Valerio Scalone

Banque de France ( email )



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