StressTesting Household Debt in Korea

 
Author/Editor: Karasulu, Meral
 
Publication Date: November 01, 2008
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: Korean household debt has reached 148 percent of disposable income, high by emerging market standards. Most of this debt remains at variable rates, shifting the interest rate risk from better diversified financial institutions to households and increasing their sensitivity to macroeconomic shocks. This paper examines the sources of, and risks from, household debt by employing stress tests on household level panel data. Results suggest that a 100-300 bps increase in interest rates could increase distressed household debt household debt by 8½?17 percentage points (ppt). A drop in real estate prices by 10?30 percent could add another 4 ppt to distressed debt. Ongoing transition to amortizing mortgages in 2008?09 presents additional challenges as interest payments on debt are likely to increase further.
 
Series: Working Paper No. 08/255
Subject(s): Korea, Republic of | Public debt | Interest rates | Income distribution | Real estate prices | Economic models

Author's Keyword(s): Household debt and stress testing
 
English
Publication Date: November 01, 2008
Format: Paper
Stock No: WPIEA2008255 Pages: 21
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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