Household Loan Loss Risk in Finland - Estimations and Simulations With Micro Data

48 Pages Posted: 21 Aug 2007

See all articles by Risto Herrala

Risto Herrala

European Central Bank (ECB) - Directorate General International and European Relations

Karlo Kauko

Bank of Finland

Date Written: August 2007

Abstract

This discussion paper presents a microsimulation model of household distress. We use logit analysis to estimate the extent to which a household's risk of being financially distressed depends on net income after tax and loan servicing costs. The impact of assumed macroeconomic shocks on this net income concept is calculated at the household level. The microsimulation model is used to simulate both the number of distressed households and their aggregate debt in various macroeconomic scenarios. The simulations indicate that household credit risks to banks are relatively well contained.

Keywords: financial stability, indebtedness, micro simulations, households

JEL Classification: D14, G21, E47, R29

Suggested Citation

Herrala, Risto and Kauko, Karlo, Household Loan Loss Risk in Finland - Estimations and Simulations With Micro Data (August 2007). Bank of Finland Research Discussion Paper No. 5/2007, Available at SSRN: https://ssrn.com/abstract=1008512 or http://dx.doi.org/10.2139/ssrn.1008512

Risto Herrala (Contact Author)

European Central Bank (ECB) - Directorate General International and European Relations ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Karlo Kauko

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

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