Household resilience to expenditure and debt service channels under current inflationary conditions

Tamanna Adhikari and Fang Yao
Additional contact information
Tamanna Adhikari: Central Bank of Ireland
Fang Yao: Central Bank of Ireland

No 3/FS/23, Financial Stability Notes from Central Bank of Ireland

Abstract: This Note uses household survey data to estimate distress rates in Ireland based on a financial margin approach. We explore the role of both the expenditure and debt service channels in determining household borrowers’ financial distress. In our baseline scenario, where inflation is expected to gradually recede, nominal income growth remains robust and unemployment does not increase, we find the debt-servicing channel to be more important than the expenditure channel in explaining the increase in distress amongst mortgaged households. Under this scenario to the end of this year, distress rates are modelled to increase only from 8.3 to 9.6 per cent. The distress rate is modelled to increase to 12.7 per cent under our most severe adverse scenario, which incorporates higher inflation, higher interest rates and a significant increase in unemployment. The increase in distress is disproportionately concentrated amongst low-income and high debt cohorts as well as borrowers with tracker loans.

Date: 2023-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.centralbank.ie/docs/default-source/pub ... df?sfvrsn=29b7991d_9 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbi:fsnote:3/fs/23

Access Statistics for this paper

More papers in Financial Stability Notes from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly ().