Are CESEE borrowers at risk? COVID-19 implications in a stress test analysis

Aleksandra Riedl ()

Focus on European Economic Integration, 2021, issue Q1/21, 37-53

Abstract: We simulate an increase in the unemployment rate to assess the impact of an income shock on the financial vulnerability of households in ten countries of Central, Eastern and Southeastern Europe (CESEE). According to our definition, a household is financially vulnerable when its debt service-to-income (DSTI) ratio is 40% or more. Using microdata from the 2019 fall wave of the OeNB Euro Survey allows us to calculate the share of vulnerable households in a consistent manner across countries. We use this indicator to analyze the response to various shock scenarios that are based on recent unemployment projections amid the COVID-19 pandemic. Given the unified microsimulation framework, we can provide a comparative assessment of the effects stemming from an increase in the unemployment rate on house¬holds’ debt service capacity across the ten examined CESEE countries. Our results suggest that the share of vulnerable households increases almost linearly with a rise in the unemployment rate but to a very different extent across countries. We identify several factors for the observed variability, one being the amount of wage replacement rates. In countries where unemployment benefits are comparatively high, adverse effects can be mitigated to a significant degree.

Keywords: unemployment rate; Monte Carlo Analysis; income shock; CESEE; household indebtedness; comparative approach; microdata (search for similar items in EconPapers)
JEL-codes: D10 D14 D30 E17 E44 G51 (search for similar items in EconPapers)
Date: 2021
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