Shubhasis Dey

Author

Staff working papers

See More

Bank publications

Bank of Canada Review articles

June 17, 2008

A Tool for Assessing Financial Vulnerabilities in the Household Sector

Bank of Canada Review - Summer 2008 Shubhasis Dey, Ramdane Djoudad, Yaz Terajima
In this article, the authors build on the framework used in the Bank of Canada's Financial System Review to assess the evolution of household indebtedness and financial vulnerabilities in response to changing economic conditions. To achieve this, they first compare two microdata sets generated by Ipsos Reid's Canadian Financial Monitor and Statistics Canada's Survey of Financial Security. They find that the surveys are broadly comparable, despite methodological differences. This enables them to use the combined information content for the identification of the threshold value of the debt-service ratio (DSR). The article then presents an innovative framework that uses household-level microdata to simulate changes in the distribution of the DSR under various stress scenarios. The authors show how this framework can be used by analyzing the effects of two different scenarios on the distribution of the debt-service ratio and the impact on vulnerable households. This tool will enable researchers to refine their analyses of current risks to the financial health of Canadian households. The article concludes with comments on future directions for refining the Bank's analyses of household sector risk.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Econometric and statistical methods, Economic models, Financial stability

See More

Financial System Review articles