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Are CESEE borrowers at risk? COVID-19 implications in a stress test analysis

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  • Aleksandra Riedl

    (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

We simulate an increase in the unemployment rate to assess the impact of an income shock on the financial vulnerability of households in ten countries of Central, Eastern and Southeastern Europe (CESEE). According to our definition, a household is financially vulnerable when its debt service-to-income (DSTI) ratio is 40% or more. Using microdata from the 2019 fall wave of the OeNB Euro Survey allows us to calculate the share of vulnerable households in a consistent manner across countries. We use this indicator to analyze the response to various shock scenarios that are based on recent unemployment projections amid the COVID-19 pandemic. Given the unified microsimulation framework, we can provide a comparative assessment of the effects stemming from an increase in the unemployment rate on house¬holds’ debt service capacity across the ten examined CESEE countries. Our results suggest that the share of vulnerable households increases almost linearly with a rise in the unemployment rate but to a very different extent across countries. We identify several factors for the observed variability, one being the amount of wage replacement rates. In countries where unemployment benefits are comparatively high, adverse effects can be mitigated to a significant degree.

Suggested Citation

  • Aleksandra Riedl, 2021. "Are CESEE borrowers at risk? COVID-19 implications in a stress test analysis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/21, pages 37-53.
    • Handle: RePEc:onb:oenbfi:y:2021:i:q1/21:b:2
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    References listed on IDEAS

    as
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    2. repec:zbw:bofrdp:2007_005 is not listed on IDEAS
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    More about this item

    Keywords

    unemployment rate; Monte Carlo Analysis; income shock; CESEE; household indebtedness; comparative approach; microdata;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D30 - Microeconomics - - Distribution - - - General
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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