Financial Fragility Across Europe and the US: The Role of Portfolio Choices, Household Features and Economic-Institutional Setup

38 Pages Posted: 3 Jun 2020

See all articles by Marianna Brunetti

Marianna Brunetti

Dept. Economics and Finance, University of Rome Tor Vergata; CEFIN

Elena Giarda

Dipartimento di Analisi e Ricerca Economica, Prometeia; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN); Fondazione Rodolfo Debenedetti

Costanza Torricelli

University of Modena and Reggio Emilia - Department of Economics; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN); Center for Research on Pensions and Welfare Policies (CeRP)

Date Written: May 28, 2020

Abstract

This paper investigates households’ financial fragility in twelve European countries and in the US by employing the first wave of the Household Finance and Consumption Survey (HFCS) and the 2010 Survey of Consumer Finances (SCF), respectively. Financial fragility is defined by taking into account both income constraints and portfolio composition (liquidity and indebtedness). Three main results emerge. First, the estimation of bivariate probit models reveals that in all countries holding an illiquid portfolio increases the likelihood of being financially fragile, while having a mortgage generally reduces it. Second, there are relevant differences among countries in their estimated average probability of financial fragility. Finally, decomposition of these differences by means of counterfactual methods provides evidence of a significant role of the country’s economic-institutional setup in providing a safety net against financial fragility. This is more true in Europe than in the US.

Keywords: Household financial fragility, portfolio liquidity, mortgage, HFCS, SCF

JEL Classification: D12, D14, C25

Suggested Citation

Brunetti, Marianna and Giarda, Elena and Torricelli, Costanza, Financial Fragility Across Europe and the US: The Role of Portfolio Choices, Household Features and Economic-Institutional Setup (May 28, 2020). CEIS Working Paper No. 487, Available at SSRN: https://ssrn.com/abstract=3613305 or http://dx.doi.org/10.2139/ssrn.3613305

Marianna Brunetti (Contact Author)

Dept. Economics and Finance, University of Rome Tor Vergata ( email )

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HOME PAGE: http://economia.uniroma2.it/en/def/faculty/178/brunetti-marianna

CEFIN ( email )

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Elena Giarda

Dipartimento di Analisi e Ricerca Economica, Prometeia ( email )

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+39051220753 (Fax)

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Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) ( email )

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Modena, modena I-41100
Italy

Fondazione Rodolfo Debenedetti ( email )

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Costanza Torricelli

University of Modena and Reggio Emilia - Department of Economics ( email )

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Italy
+390592056733 (Phone)
+390592056937 (Fax)

HOME PAGE: http://www.economia.unimore.it/torricelli_costanza/index.htm

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) ( email )

via Berengario 51
Modena, modena I-41100
Italy

Center for Research on Pensions and Welfare Policies (CeRP) ( email )

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Moncalieri, Turin 10024
Italy

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