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Household Credit and Probability Forecasts of Financial Distress in the United Kingdom

Author

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  • Paul Mizen
  • Kevin Lee

Abstract

The growth of unsecured household credit relative to income has been marked in recent years and many observers have questioned whether it is sustainable. This paper develops a theory-based empirical model of equilibrium household consumption and credit. The equilibrium relationships are embedded within a vector-autoregressive model that can accommodate complex dynamics with a coherent long-run structure. We define the events associated with financial distress and describe probability forecasting methods that can be applied to the model to predict the likely occurence of distress events. The analysis is illustrated using unsecured credit market data for the UK.

Suggested Citation

  • Paul Mizen & Kevin Lee, 2007. "Household Credit and Probability Forecasts of Financial Distress in the United Kingdom," Discussion Papers 07/08, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:07/08
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    File URL: https://www.nottingham.ac.uk/cfcm/documents/papers/07-08.pdf
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