Financial Fragility across Europe and the US: The Role of Portfolio Choices, Household Features and Economic-institutional Setup

Brunetti MariannaGiarda ElenaTorricelli Costanza
CEIS Research Paper
This paper investigates households’ financial fragility in twelve European countries and in the US by employing the first wave of the Household Finance and Consumption Survey (HFCS) and the 2010 Survey of Consumer Finances (SCF), respectively. Financial fragility is defined by taking into account both income constraints and portfolio composition (liquidity and indebtedness). Three main results emerge. First, the estimation of bivariate probit models reveals that in all countries holding an illiquid portfolio increases the likelihood of being financially fragile, while having a mortgage generally reduces it. Second, there are relevant differences among countries in their estimated average probability of financial fragility. Finally, decomposition of these differences by means of counterfactual methods provides evidence of a significant role of the country’s economic-institutional setup in providing a safety net against financial fragility. This is more true in Europe than in the US.
 

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Number: 487
Keywords: household financial fragility, portfolio liquidity, mortgage, HFCS, SCF
JEL codes: D12, D14, C25
Volume: 18
Issue: 4
Date: Saturday 30 May 2020
Revision Date: Saturday 30 May 2020