Household indebtedness and their vulnerability to rising interest rates

Gastón Giordana and Michael Ziegelmeyer

No 173, BCL working papers from Central Bank of Luxembourg

Abstract: High inflation and rising interest rates could increase financial vulnerability among Luxembourg households, who tend to carry significant debt. This paper uses micro-data on individual households from the Luxembourg Household Finance and Consumption Survey (HFCS) to identify pockets of financial vulnerability across the resident population. We calculate seven standard debt burden indicators and simulate their evolution through the end of 2023 based on BCL macroeconomic projections. According to several indicators, the share of financially vulnerable households increased from 2018 to 2021. Our simulations suggest this trend continued in 2022 and 2023 for those indicators that focus on the risk of delayed payment, although it may have reverted for other indicators that focus on the level of debt. Risk is concentrated among low-income households, but indebted households in this group only account for 11% of the number of mortgage contracts and 9% of aggregate household sector debt.

Keywords: Household debt; Financial vulnerability; Interest rates; Micro-simulation (search for similar items in EconPapers)
JEL-codes: E44 E47 G21 G28 G51 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2023-06
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp173

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