Household Debt Sustainability: What Explains Household Non-Performing Loans? An Empirical Analysis

45 Pages Posted: 10 Jan 2006

See all articles by Laura Rinaldi

Laura Rinaldi

KU Leuven - Center for Economic Studies

Alicia Sanchis-Arellano

Banco de España

Date Written: January 2006

Abstract

Sound household financial conditions are relevant for both financial and monetary stability. Therefore, we analyse household financial fragility in a sample of euro area countries with the aim to shed some light on the nature of the large debt increase accumulated in recent years. We focus on household arrears on payment obligations, which are one of the most direct measures of financial stress of the sector. The probability of falling into arrears is derived from a life-cycle type of model and is investigated empirically using a cross-section and time series approach. We analyse cointegration and model arrears within an errorcorrection framework. The results suggest that the financial conditions of households might become more vulnerable to adverse shocks in their income and wealth.

Keywords: Panel cointegration, non-performing loans, household debt sustainability, default

JEL Classification: C23, G21, D14

Suggested Citation

Rinaldi, Laura and Sanchis-Arellano, Alicia, Household Debt Sustainability: What Explains Household Non-Performing Loans? An Empirical Analysis (January 2006). ECB Working Paper No. 570, Available at SSRN: https://ssrn.com/abstract=872528 or http://dx.doi.org/10.2139/ssrn.872528

Laura Rinaldi (Contact Author)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32.16.326 842 (Phone)
+32.16.326 796 (Fax)

HOME PAGE: http://www.econ.kuleuven.ac.be/ew/academic/intecon/Rinaldi/CV%20economic.pdf

Alicia Sanchis-Arellano

Banco de España ( email )

Alcala 50
E-28014 Madrid
Spain

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