How Does Financial Vulnerability Amplify Housing and Credit Shocks?

34 Pages Posted: 15 May 2020

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


In this paper we study how households’ financial vulnerability affects the propagation of housing and credit shocks. First, we estimate a non-linear model generating impulse responses that depend on the evolution of households' Debt to Service Ratio, i.e. the fraction of income that households use to pay back their debt. Second, we use sign restrictions to jointly identify a wide set of financial and economic shocks. We find that financial vulnerability: i) amplifies the response of the economy to housing shock, ii) makes the response to expansionary credit shocks less persistent and even negative after the first year since the arrival of the shock. Finally, overall recessionary shocks have larger effects with respect to expansionary ones of the same size.

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 )



Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics