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Stress Testing the Australian Household Sector Using the HILDA Survey

Author

Listed:
  • Tom Bilston

    (Reserve Bank of Australia)

  • Robert Johnson

    (Reserve Bank of Australia)

  • Matthew Read

    (Reserve Bank of Australia)

Abstract

In Australia, the banking sector's substantial exposure to the household sector gives reason to continuously assess the financial resilience of households. In this paper, we further explore the simulation-based household stress-testing model presented in Bilston and Rodgers (2013). This model uses data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey to quantify the household sector's financial resilience to macroeconomic shocks. The model suggests that through the 2000s the household sector remained resilient to scenarios involving asset price, interest rate and unemployment rate shocks, and the associated increases in household loan losses under these scenarios were limited. Indeed, the results suggest that, despite rising levels of household indebtedness in aggregate, the distribution of household debt has remained concentrated among households that are well placed to service it. In turn, this suggests that aggregate measures of household indebtedness may be misleading indicators of the household sector's financial fragility. The results also highlight the potential for expansionary monetary policy to offset the effects of increases in unemployment and decreases in asset prices on household loan losses.

Suggested Citation

  • 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.
    • Handle: RePEc:rba:rbardp:rdp2015-01
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    References listed on IDEAS

    as
    1. Ramdane Djoudad, 2011. "A framework to assess vulnerabilities arising from household indebtedness using microdata," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Initiatives to address data gaps revealed by the financial crisis", Basel, 25-26 August 2010, volume 34, pages 151-168, Bank for International Settlements.
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    3. Martin W johansson & Mattias Persson, 2007. "Swedish households' indebtedness and ability to pay: a household level study," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 2, volume 26, pages 234-248, Bank for International Settlements.
    4. Nicolas Albacete & Pirmin Fessler, 2010. "Stress Testing Austrian Households," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 19, pages 72-91.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    stress test; household surveys;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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