Acceso usuarios
Ramdane Djoudad
Rising levels of household indebtedness have created concerns about the vulnerability of households to adverse economic shocks and the impact on financial stability. To assess this risk, we present a formal stress-testing framework that uses microdata to simulate how various economic shocks affect the distribution of the debt-service-ratio (DSR) for the household sector. We use Ipsos Reid Canadian Financial Monitor (CFM) survey data to construct the actual DSR distribution for households at the starting point of the exercise. The next step is to simulate changes in the distribution using a macro scenario describing the evolution of some aggregate variables, and micro behavioural relationships. For example, to simulate credit growth for individual households, we use cross-sectional data to estimate debt-growth equations as a function of household income, interest rates, and housing prices. The simulated distributions provide information on vulnerabilities in the household sector. Finally, we present a combined methodology where changes in the probability of default on household loans are used as a metric to evaluate the quantitative impact of negative employment shocks on the resilience of households and loan losses at financial institutions.
