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Households’ Financial Vulnerability

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  • Marcelo Fuenzalida
  • Jaime Ruiz-Tagle

Abstract

Households financial vulnerability determines households' default risk. Financial stability could be affected by households behaviour under stressing macroeconomic conditions. Households financial vulnerability depends on their indebtedness levels and on the fragility of their income sources to be able to fulfill their obligations. The main source of households uncertainty comes from labour income generation, which is critically determined by unemployment. Heterogeneity of indebtedness levels and of income uncertainty calls for microeconomic analysis. This paper uses panel data survival analysis to estimate the probability of job loss at the individual level. Using semiparametric methods, a significant heterogeneity is found for the impact of aggregate unemployment among individuals. Monte Carlo simulations are run to assess households financial stress and then to estimate aggregate debt at risk under high unemployment rates scenarios. Since the majority of debt is held by those with lower levels of income vulnerability, it is found that financial stability is not significantly affected by high unemployment levels.

Suggested Citation

  • Marcelo Fuenzalida & Jaime Ruiz-Tagle, 2009. "Households’ Financial Vulnerability," Working Papers Central Bank of Chile 540, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:540
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_540.pdf
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    References listed on IDEAS

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    1. Tullio Jappelli & Marco Pagano & Marco Di Maggio, 2013. "Households' indebtedness and financial fragility," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 1, pages 23-46, January.
    2. Paulo Cox & Eric Parrado & Jaime Ruiz-Tagle, 2006. "Distribution of Assets, Debt, and Income of Chilean Households," Working Papers Central Bank of Chile 388, Central Bank of Chile.
    3. Guy Debelle, 2004. "Macroeconomic implications of rising household debt," BIS Working Papers 153, Bank for International Settlements.
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    Cited by:

    1. International Monetary Fund, 2013. "Brazil: Technical Note on Consumer Credit Growth and Household Financial Stress," IMF Staff Country Reports 2013/149, International Monetary Fund.
    2. Allen, Jason & Grieder, Timothy & Peterson, Brian & Roberts, Tom, 2020. "The impact of macroprudential housing finance tools in canada," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    3. Mikus Arins & Nadezda Sinenko & Laura Laube, 2014. "Survey-Based Assessment of Household Borrowers' Financial Vulnerability," Discussion Papers 2014/01, Latvijas Banka.
    4. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2016. "Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 628-649, December.
    5. Tom Bilston & Robert Johnson & Matthew Read, 2015. "Stress Testing the Australian Household Sector Using the HILDA Survey," RBA Research Discussion Papers rdp2015-01, Reserve Bank of Australia.
    6. Gan-Ochir Doojav & Ariun-Erdene Bayarjargal, 2017. "Stress testing the household sector in Mongolia," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 24(2), pages 23-52, December.
    7. Gross, Marco & Población García, Francisco Javier, 2016. "Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households," Working Paper Series 1881, European Central Bank.
    8. Hosung Jung & Hyun Hak Kim, 2020. "Default Probability by Employment Status in South Korea," Asian Economic Papers, MIT Press, vol. 19(3), pages 62-84, Fall.
    9. Jason Allen & Timothy Grieder & Brian Peterson & Tom Roberts, 2016. "The Impact of Macroprudential Housing Finance Tools in Canada: 2005–10," Staff Working Papers 16-41, Bank of Canada.
    10. Muhamad Shukri Abdul Rani & Siti Hanifah Borhan Nordin & Chin Ching Lau & Sheng Ling Lim & Zhen Shing Siow, 2017. "Rich debt, poor debt: assessing household indebtedness and debt repayment capacity," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial systems and the real economy, volume 91, pages 153-168, Bank for International Settlements.
    11. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2016. "Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 628-649, December.
    12. Piotr Bialowolski & Dorota Weziak-Bialowolska, 2014. "The Index of Household Financial Condition, Combining Subjective and Objective Indicators: An Appraisal of Italian Households," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 118(1), pages 365-385, August.
    13. Gross, Marco & Población, Javier, 2017. "Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households," Economic Modelling, Elsevier, vol. 61(C), pages 510-528.
    14. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2020. "Financial Fragility across Europe and the US: The Role of Portfolio Choices, Household Features and Economic-institutional Setup," CEIS Research Paper 487, Tor Vergata University, CEIS, revised 28 May 2020.
    15. Tom Bilston & David Rodgers, 2013. "A Model for Stress Testing Household Lending in Australia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 27-38, December.

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