DANMARKS NATIONALBANK WEALTH, DEBT AND MACROECONOMIC STABILITY Niels Lynggård Hansen, Head of Economics and Monetary Policy. IARIW, Copenhagen, 21 August 2018
Agenda Descriptive evidence on household debt and assets Microdata-based evidence from Denmark Financial stability Macroeconomic stability 20. august 2018 2
Household debt and assets
Latvia Slovenia Poland Czech Republic Slovak Republic Estonia Italy Austria Germany Japan France Greece United States Belgium Spain Finland Portugal United Kingdom Ireland Canada Korea Sweden Luxembourg Australia Switzerland Norway Netherlands Denmark Danish households have high levels of debt Debt to disposable income, per cent 300 250 200 150 100 50 0 Note: Data for 2016. Source: OECD
Slovakia Poland Slovenia Latvia Estonia Czech Republic Greece Finland Norway Spain Austria Germany Portugal France Korea Italy Ireland Australia Luxembourg United Kingdom United States Sweden Belgium Japan Switzerland Denmark Netherlands But also substantial financial assets Per cent of disposable income 800 700 600 500 400 300 200 100 0 Private pensions Equity Other financial assets Note: Data for 2016. Private pensions refer to assets in pensions funds and life insurance and are before taxes. Source: OECD
Evidence from Danish microdata
Detailed microdata covering Danish families Administrative registers Statistics Denmark ----------------------------------- ID no. Income Wealth Debt Family relations Other background characteristics Data from mortgage banks ----------------------------------- ID no. Principal Outstanding loan balance Interest rate Maturity Amortisation profile Interest profile LTV etc. 2.5 million families of which 800,000 homeowner families 2002-16
Debt is highly concentrated among highincome families Share of total debt stock, per cent 35 30 25 20 15 10 5 0 1 2 3 4 5 6 7 8 9 10 2002 2016 Source: Own calculations based on household level data from Statistics Denmark
and among families with large financial assets Share of total debt stock, per cent 20 18 16 14 12 10 8 6 4 2 0 1 2 3 4 5 6 7 8 9 10 Assets, including pension wealth, excluding homes in Denmark (deciles) Note: Data for 2015. Source: Own calculations based on household level data from Statistics Denmark.
Financial Stability
0-50 50-100 Debt relative to home value, per cent 100-150 Over 150 Percent homeowners in cells of debt relative to home value and gross income 0 2 2 1 1 1 1 6 7 3 1 2 3 15 14 7 3 4 11 9 4 2 1 1 0-100 100-200 200-300 300-400 400-500 Over 500 Debt relative to gross income, per cent Note: Homeowners are divided into cells based on their total debt relative to the value of their home and gross income. Data for 2016. Source: Statistics Denmark and own caclulations 20. august 2018 11
Households with IO-loans have lower savings rates Savings rate, per cent of disposable income 35 30 25 20 15 10 5 0-5 Liquid assets Pension Mortgage debt Other debt Total savings rate Increase in savings Loan amortisation Total Fixed rate, with amortization Variable rate, with amortization Fixed rate, without amortization Variable rate, without amortization Note: Data for 2015. 20. august 2018 12
Stress testing households' financial situation Per cent of households 80 70 60 50 40 30 20 10 0-150 -100-50 0 50 100 150 200 Financial margin, 1,000 kr. Baseline 5 pp. interest rate shock 9 pp. interest rate shock Note: Data for 2016. 20. august 2018 13
Macroeconomic Volatility: Did high debt amplify reduction in consumption after crisis?
Constructing a measure of consumption Start from accounting identity Imputed measure C = Y d S C imp = Y d P NW Observed
Consumption ratio for different pre-crisis Loan-to-value (LTV) Consumption ratio 1.20 1.15 1.10 1.05 1.00 0.95 0.90 2005 2006 2007 2008 2009 2010 2011 LTV ratio in 2007 < 60 per cent LTV ratio in 2007 between 80 and 100 per cent LTV ratio in 2007 between 60 and 80 per cent LTV ratio in 2007 > 100 per cent
Borrowers have continued to reduce their consumption in spite of low interest rates Median consumption to income ratio 1.04 1.02 1.00 0.98 0.96 0.94 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Savers Borrowers Note: Borrowers are defined as households whose financial liabilities exceed their financial assets (excluding pension savings) and vice versa for savers. 20. august 2018 17
Consumption ratios and gross debt Median consumption to income ratio 1.3 1.2 1.1 1.0 0.9 0.8 0 50 100 150 200 250 300 350 400 450 500 550 600 Loan to income (LTI) 2005 2010 2015 20. august 2018 18
Main takeaways Microdata facilitates in-depth analysis of underlying mechanisms in macroeconomics Highly indebted households in Denmark generally have high income and substantial financial assets Risks, e.g. from low interest rates, closely monitored by micro data. Only few households most of which are young are vulnerable to sudden interest rate increases High household leverage may increase macroeconomic volatility 20. august 2018 19