Household Finance and Consumption Network (HFCN)

The Household Finance and Consumption Network (HFCN), which was established in December 2006, consists of survey specialists, statisticians and economists from the ECB, the national central banks of the Eurosystem and a number of national statistical institutes.

The HFCN conducts the Eurosystem's Household Finance and Consumption Survey (HFCS), which collects household-level data on households' finances and consumption. The datasets from the first and second wave were released respectively in April 2013 and December 2016.

About the network

The HFCN has been tasked by the Governing Council of the ECB with

  • implementing the HFCS;
  • acting as a forum for research that uses survey data;
  • further developing the HFCS.
Chair/secretariat

The HFCN is chaired by Ioannis Ganoulis and Oreste Tristani (both ECB). Its secretaries are Sébastien Pérez-Duarte and Jiri Slacalek (both ECB).

Contact

You can get in touch with us by writing to hfcs@ecb.europa.eu. We also maintain a mailing list and discussion group on HFCS matters, where users and producers of the HFCS can interact.

Access to the Data

The first and second wave of the HFCS datasets were released to researchers for research purposes in April 2013 and December 2016, respectively. You can apply for access to these data by filling in the form and sending it to hfcs@ecb.europa.eu.

Feedback on the HFCS

Users of the HFCS data are invited to provide feedback about the survey and the survey data to hfcs@ecb.europa.eu. This feedback may include, for example:

  • Views on the usefulness of the contents and the user-friendliness of the structure of the micro data
  • Comments and suggestions on the documentation of the HFCS
  • Suggestions on how to improve the contents of the survey
  • Specific questions on the data, such as clarification needs for individual observations or variables
  • Information about possible inconsistencies or pitfalls detected in the micro data

About the survey

The HFCS collects household-level data on households' finances and consumption. The fieldwork took place for most countries in 2010 and 2011 for the first wave and between 2013 and the first half of 2015 for the second wave. Anonymised microdata from the first and second wave were made available to the researchers respectively in April 2013 and December 2016.

Implementation

The HFCS is conducted at the national level. In view of the considerable cultural and institutional differences between euro area countries, there needs to be some flexibility in the formulation of the questions for the individual countries in order to obtain comparable data. The participating institutions produce harmonised output (i.e. survey data) for their respective country, but do not necessarily use identical questionnaires. However, a common template questionnaire serves as a benchmark for the country questionnaires, as well as for establishing the output desired.

Common set of output variables

The participating institutions report a set of commonly agreed output variables for their respective country. '"Core" output variables' are to be delivered for all participating countries. A set of 'non-core variables' has also been defined, with the participating institutions being free to decide which of these non-core variables they collect and report for their respective country. The collection of standardised variables will ensure cross-country comparability.

Second wave

First wave

Contents of the survey

The HFCS questionnaire consists of two main parts:

  1. questions relating to the household as a whole, including questions on real assets and their financing, other liabilities/credit constraints, private businesses, financial assets, intergenerational transfers and gifts, and consumption and saving;
  2. questions relating to individual household members, covering demographics (for all household members), employment, future pension entitlements and income (for household members aged 16 and over).

In addition, there are standardised questions to determine the respondent who should answer the questions on the household as a whole (the "financially knowledgeable person"), as well as questions to be answered by the interviewer relating to the appearance and location of the house/flat and the interviewees' behaviour during the interview. These provided "paradata", which were particularly useful when editing and imputing data after the fieldwork was completed.

FAQ on the second wave of the survey
FAQ on the first wave of the survey

National central banks and national statistical institutes participating in the HFCS

Purpose of the data

The main aim of the HFCS is to gather micro-level structural information on euro area households' assets and liabilities. The survey also collects other information in order to analyse the economic decisions taken by households.

Overall aim of the data

Survey data are key to:

  • understanding both individual behaviour and developments in aggregate variables;
  • evaluating the impact of shocks, policies and institutional changes, both for households and for different institutional structures;
  • better understanding the implications of shocks for macroeconomic variables;
  • building and calibrating realistic economic models incorporating heterogeneous agents;
  • gaining important insights into issues such as monetary policy transmission and financial stability.
Importance of household sub-populations

Gathering information on the behaviour of sub-populations of households is essential. For instance, the financial crisis has demonstrated that a relatively small percentage of households – those who are highly indebted – can have a major impact on market outcomes. Another example of an influential sub-group is the top wealthiest households. Though small in number, these have a highly disproportionate effect on aggregate statistics.

Areas of research

More specifically, the following questions in the field of household finance may be of particular interest to researchers and policy-makers.

Debt and financial pressures

  • What is the cross-sectional distribution of debt (e.g. for different levels of income and net worth), and how does this change over time?
  • Are there mismatches between the assets and liabilities of individual households in terms of their size, volatility, interest-rate sensitivity or liquidity?
  • Which types of debt are taken on by households (home equity withdrawal, credit card debt, interest rate modalities, etc.), and what, for instance, is the relationship between debt and collateral?
  • What drives households' indebtedness?
  • How do macroeconomic and financial shocks affect indebtedness at the household level?
  • How do highly indebted households cope with risk and mitigate shocks? Is their consumption more volatile? How does their labour supply respond?
  • Counterfactual simulations of the effects that adverse shocks have on individual households

Portfolio choice and demand for assets

  • How unevenly is wealth distributed?
  • Measuring portfolio diversification and home bias
  • What determines demand for assets (e.g. stock market participation)?
  • What determines the share of riskier assets?
  • What drives entrepreneurship?
  • What determines home ownership/demand for housing? To what extent are houses/flats purchased for investment purposes (e.g. second homes)?
  • Do households that are subject to larger economic risks accumulate more assets?
  • What effect did the economic and financial crisis have on households' balance sheets?

Saving, liquidity constraints and the smoothing of consumption

  • What is the extent (and cross-sectional distribution) of liquidity constraints?
  • What is the extent of precautionary saving? What determines the extent of saving for retirement?
  • Do households have enough savings to maintain their consumption after retirement?
  • How well do different households mitigate adverse income and wealth shocks?

Computational finance

  • How well do standard models of consumption choices and labour supply in the presence of uncertainty match wealth distribution/inequality, the structure of balance sheets, home ownership, etc.?
  • Using structural models to estimate relevant "deep" parameters
  • Using structural models to carry out counterfactual simulations of policy-relevant experiments

Documents and links

Access to the HFCS data Implementation documents Background documents
Other international initiatives

Publications

Publications and results

Second wave

First wave

HFCN publications
No. 2190
30 October 2018
How does monetary policy affect income and wealth inequality? Evidence from quantitative easing in the euro area

Abstract

JEL Classification

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies

Abstract

This paper studies the effects of quantitative easing on income and wealth of individual euro area households. The aggregate effects of quantitative easing are estimated in a multi-country VAR model of the four largest euro area countries, in which key variables affecting household income and wealth are included, such as the unemployment rate, wages, interest rates, house prices and stock prices. The aggregate effects are distributed across the individual households by means of a reduced-form simulation on micro data from the Household Finance and Consumption Survey, capturing the income composition, the portfolio composition and the earnings heterogeneity channels of transmission. We find that the earnings heterogeneity channel plays a key role: quantitative easing compresses the income distribution since many households with lower incomes become employed. In contrast, monetary policy has only negligible effects on wealth inequality.

No. 2187
16 October 2018
Is the top tail of the wealth distribution the missing link between the Household Finance and Consumption Survey and national accounts?

Abstract

JEL Classification

C46 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Specific Distributions, Specific Statistics

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts

Abstract

The financial accounts of the household sector within the system of national accounts report the aggregate asset holdings and liabilities of all households within a country. In principle, when household wealth surveys are explicitly designed to be representative of all households, aggregating these micro data should correspond to the macro aggregates. In practice, however, differences are large. We first discuss conceptual and generic differences between those two sources of data. Thereafter we investigate missing top tail observation from wealth surveys as a source of discrepancy. By fitting a Pareto distribution to the upper tail, we provide an estimate of how much of the gap between the micro and macro data is caused by the underestimation of the top tail of the wealth distribution. Conceptual and generic differences as well as missing top tail observations explain part of the gap between financial accounts and survey aggregates.

No. 2184
12 October 2018
Trust and the household-bank relationship

Abstract

JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

Abstract

We examine the role of trust in households’ decisions to hold a bank account and to switch to a new bank. We explore Italian household-level data that contain restricted information on the banks that the households are doing business with, as well as measures of trust in the households’ main bank and the banking sector. We find that households who distrust the banking sector are less likely to hold a bank account. Moreover, account holders are more likely to switch to a new main bank if they do not trust their current one. The estimated relationships persist over and above a range of socioeconomic variables.

No. 2163
21 June 2018
Missing the wealthy in the HFCS: micro problems with macro implications

Abstract

JEL Classification

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts

Abstract

Macroeconomic aggregates on households’ wealth have a long tradition and are widely used to analyse and compare economies, yet they do not provide any information about the distribution of assets and liabilities within the population. The Household Finance and Consumption Survey (HFCS) constitutes a rich source of micro data that can be used to link macro aggregates with distributional information to compile Distributional National Accounts for wealth. Computing aggregates from this survey usually yields much lower amounts than what is reported by macroeconomic statistics. An important source of this gap may be the lack of the wealthiest households in the HFCS. This article combines a semi-parametric Pareto model estimated from survey data and observations from rich lists with a stratification approach making use of HFCS portfolio structures to quantify the impact of the missing wealthy households on instrument-specific gaps between micro and macro data. We analyse data for Austria and Germany, and find that adjusting for the missing wealthy pushes up inequality even further, increases instrument-specific aggregates, has large effects on equity, but explains less than ten percentage points of the micro-macro gap for most other instruments. Additionally, we document that some countries’ lack of an oversampling strategy for wealthy households limits the cross-country comparability of wealth inequality statistics.

No. 2087
12 July 2017
Housing and the tax system: how large are the distortions in the euro area?

Abstract

JEL Classification

H24 : Public Economics→Taxation, Subsidies, and Revenue→Personal Income and Other Nonbusiness Taxes and Subsidies

H31 : Public Economics→Fiscal Policies and Behavior of Economic Agents→Household

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

Abstract

This paper presents new evidence on the impact of the preferential treatment of owner-occupied housing in Europe. We find that tax benefits to homeowners reduce the user cost of housing capital by almost 40 percent compared to the efficient level under neutral taxation. On average, the tax subsidy translates into an excess consumption of housing services equivalent to 7.8 percent of the value of owner-occupied housing, or about 30 percent of financial asset holdings in household portfolios. The bulk of the subsidies stems from under-taxation of the return to home equity, while the average contribution of the tax rebate for mortgage interest payments is driven down by relatively low loan-to-value ratios in the data. However, at the margin, the tax–induced incentive to use mortgage debt to finance the purchase of the main residence is sizable.

No. 2069
24 May 2017
Culture and household saving

Abstract

JEL Classification

Z1 : Other Special Topics→Cultural Economics, Economic Sociology, Economic Anthropology

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving

Abstract

This paper examines the role of culture in households saving decisions. Exploiting the historical language borders within Switzerland, I isolate the effect of households’ exposure to certain language groups from economic, institutional, demographic and geographic factors for a homogeneous and representative sample of households. The analysis uses the Swiss Household Panel which I complement with geographic and socio-economic data. I show that low- and middle-income households located in the German-speaking part are more than 11 percentage points more likely to save than similar households in the French-speaking part. In line with the existing literature, I show that these differences across language regions are consistent with different distributions of time preferences. By contrast, I do not find clear evidence for risk sharing during times of financial distress.

No. 2062
16 May 2017
The great Irish (de)leveraging 2005-14

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

Abstract

Drawing on the 2013 Household Finance and Consumption Survey (HFCS) and complementary administrative data sources, we simulate household balance sheets at the micro level for the 2005-14 period. We use this dataset to tell the story of household leveraging and deleveraging over a tumultuous period for the Irish economy. We show that deleveraging has proceeded at a signficantly faster pace for older households, when compared with younger age groups. In contrast, we find that a higher-incidence o f tracker mortgages amongst younger borrowers – which passed through the historically low ECB policy rates since 2009 – relative to older borrowers has played a major role in easing the debt repayment burden in the presence of large income shocks. Notwithstanding historically low interest rates, we show that income shocks are the main factor contributing to mortgage repayment problems. However, there is also a role for equity factors.

No. 2013
3 February 2017
Regular versus lump-sum payments in union contracts and household consumption

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

J51 : Labor and Demographic Economics→Labor?Management Relations, Trade Unions, and Collective Bargaining→Trade Unions: Objectives, Structure, and Effects

Abstract

We use information on monthly wage increases set by collective agreements in Italy and exploit their variation across sectors and over time in order to examine how household consumption responds to different types of positive income shocks (regular tranches versus lump-sum payments). Focusing on single-earner households, we find evidence of consumption smoothing in accordance with the Permanent-Income Hypothesis, since total and food consumption do not exhibit excess sensitivity to anticipated regular payments. Consumption does not respond at the date of the announcement of income increases either, as these are known to compensate workers for the overall loss in their wages' purchasing power. However, consumption responds, albeit a little, to transitory and less anticipated one-off payments, as the expenditures on clothing & shoes increase upon the receipt of the lump-sum payments. This behaviour is consistent with bounded rationality as consumers do not consider the lump-sum as part of the overall wage inflation adjustment.

No. 1990
20 January 2017
Financial inclusion: what’s it worth?

Abstract

JEL Classification

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

Abstract

This paper studies the determinants of being unbanked in the euro area and the United States as well as the effects of being unbanked on wealth accumulation. Based on household-level data from the euro area Household Finance and Consumption Survey and the U.S. Survey of Consumer Finance, it first documents that there are, respectively, 3.6% and 7.5% of unbanked households in the two economies. Low-income households, unemployed households and those with a poor education are the most likely to be affected, and remarkably more so in the United States than in the euro area. At the same time, there is a role for government policies in fostering financial inclusion. Using a propensity score matching approach to estimate the effects of being unbanked, it is found that banked households report substantially higher net wealth than their unbanked counterparts, with a gap of around

No. 1908
24 May 2016
Unemployment risk and over-indebtedness

Abstract

JEL Classification

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving

J12 : Labor and Demographic Economics→Demographic Economics→Marriage, Marital Dissolution, Family Structure, Domestic Abuse

Abstract

We study how unemployment affects the over-indebtedness of households using the new European Household Finance and Consumption Survey (HFCS). First, we assess the role of different labor market statuses (i.e. employed, unemployed, disabled, retired, etc.) and other household characteristics (i.e. demographics, housing status, household wealth and income, etc.) to determine the likelihood of over-indebtedness. We explore these relationships both at the Euro area level and through country-specific regressions. This approach captures country-specific institutional effects concerning all the different factors which can explain household indebtedness in its most severe form. We also examine the role that each country

No. 1907
24 May 2016
Estimating the top tail of the wealth distribution

Abstract

JEL Classification

E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity

E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy

G01 : Financial Economics→General→Financial Crises

Abstract

Wealth survey data suffers simultaneously from under-representation at the top and underreporting of assets. Addressing both problems, I use the Household Finance and Consumption Survey to provide new estimates of the holdings of real assets, financial assets and liabilities and net wealth of the top one percent in Austria, Belgium, Finland, France, Germany, Italy, Spain and The Netherlands. Especially for countries doing little or no oversampling of the rich, financial asset and real asset shares held by the top 1 percent are substantially higher then survey data suggests.

No. 1899
27 April 2016
Monetary policy according to HANK

Abstract

JEL Classification

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

Abstract

We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption.

No. 1897
26 April 2016
Restoring rational choice: The challenge of consumer financial regulation

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D18 : Microeconomics→Household Behavior and Family Economics→Consumer Protection

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

Abstract

This lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively. The lecture argues that financial ignorance is pervasive and unsurprising given the complexity of modern financial products, and that it contributes meaningfully to the evolution of wealth inequality. The lecture uses a stylized model to discuss the welfare economics of paternalistic intervention in financial markets, and discusses several specific examples including asset allocation in retirement savings, fees for unsecured short-term borrowing, and reverse mortgages.

No. 1881
5 February 2016
Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households
Published in: Economic Modelling, Vol. 61, February 2017, pages 510-528

Abstract

JEL Classification

C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models

E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies

G18 : Financial Economics→General Financial Markets→Government Policy and Regulation

Abstract

We develop an integrated micro-macro model framework that is based on household survey data for a subset of the EU countries that the Household Finance and Consumption Survey (HFCS) contains. The model can be used for conducting scenario and sensitivity analyses with regard to the factors that drive households' income and expenses as well as their asset values and hence the structure of their balance sheet. Moreover, we use it for the purpose of assessing the efficacy of borrower-based macroprudential instruments, namely loan-to-value (LTV) ratio and debt service to income (DSTI) ratio caps. The simulation results from the model can be attached to bank balance sheets and their risk parameters to derive the impact of the policy measures on their capital position. The model framework also allows quantifying the macroeconomic feedback effects that would result from the policy-induced reduction of demand for mortgage loans. The model allows answering the question as to which of the two measures

No. 1853
24 September 2015
Price level changes and the redistribution of nominal wealth across the euro area

Abstract

JEL Classification

E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

Abstract

We show that unexpected price level movements generate sizable wealth redistribution in the Euro Area (EA), using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net loser of unexpected price level decreases, with Italy, Greece, Portugal and Spain losing most in per capita terms, and Belgium and Malta being net winners. Governments are net losers of deflation, while the household (HH) sector is a net winner in the EA as a whole. HHs in Belgium, Ireland, Malta and Germany experience the biggest per capita gains, while HHs in Finland and Spain turn out to be net losers. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net losers of deflation, while older and richer HHs are winners. As a result, wealth inequality in the EA increases with unexpected deflation, although in some countries (Austria, Germany and Malta) inequality decreases due to the presence of relatively few young borrowing HHs. We document that HHs inflation exposure varies systematically across countries, with HHs in high inflation EA countries holding systematically lower nominal exposures.

No. 1852
24 September 2015
Financial literacy and savings account returns

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

Abstract

Savings accounts are owned by most households, but little is known about the performance of households

No. 1847
17 September 2015
Private wealth across European countries: the role of income, inheritance and the welfare state

Abstract

JEL Classification

D30 : Microeconomics→Distribution→General

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

Abstract

Using microdata from the Household Finance and Consumption Survey (HFCS), this study examines the role of inheritance, income and welfare state policies in explaining differences in household net wealth within and between euro area countries. First, about one third of the households in the 13 European countries we study report having received an inheritance, and these households have considerably higher net wealth than those which did not inherit. Second, regression analyses on households' relative wealth position show that, on average, having received an inheritance lifts a household by about 14 net wealth percentiles. At the same time, each additional percentile in the income distribution is associated with about 0.4 net wealth percentiles. These results are consistent across countries. Third, multilevel cross-country regressions show that the degree of welfare state spending across countries is negatively correlated with household net wealth. These findings suggest that social services provided by the state are substitutes for private wealth accumulation and partly explain observed differences in levels of household net wealth across European countries. In particular, the effect of substitution relative to net wealth decreases with growing wealth levels. This implies that an increase in welfare state spending goes along with an increase - rather than a decrease - of observed wealth inequality.

No. 1790
19 May 2015
Household saving behaviour and credit constraints in the euro area

Abstract

JEL Classification

C8 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving

Abstract

We study the role of household saving behaviour, of individual motives for saving and that of perceived liquidity constraints in 15 Euro Area countries. The empirical analysis is based on the Household Finance and Consumption Survey, a new harmonized data set collecting detailed information on wealth holdings, consumption and income at the household level. Since the data is from 2010-2011, strong conclusions as regards the present are difficult to draw. This is because the crisis may have affected the data, especially in countries that were severely hit. Nevertheless we find evidence of some degree of homogeneity across countries with respect to saving preferences and the relative importance of different motives for saving. In addition, credit constraints are more heterogeneous across geographic regions and perceived to be binding for specific groups of respondents. Households living in Mediterranean countries report to be more subject to binding liquidity constraints than households living in Continental Europe. Household characteristics and institutional macroeconomic variables are significant and economically important determinants of household saving preferences and credit constraints.

No. 1762
10 March 2015
Wealth shocks, unemployment shocks and consumption in the wake of the Great Recession
Published in: Journal of Monetary Economics

Abstract

JEL Classification

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving

Abstract

Data from the 2009 Internet Survey of the Health and Retirement Study show that many U.S. households experienced large capital losses in housing and financial wealth, and that 5% of respondents lost their job during the Great Recession. As a consequence of these shocks, many households reduced substantially their expenditures. For every 10% loss in housing and financial wealth, the estimated drop in household expenditure is about 0.56% and 0.9%, respectively. In addition, those who became unemployed reduced spending by 10%. We also distinguish the effect of perceived transitory and permanent wealth shocks, splitting the sample between households who think that the stock market is likely to recover in a year

No. 1737
22 October 2014
Financial fragility of euro area households

Abstract

JEL Classification

D10 : Microeconomics→Household Behavior and Family Economics→General

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

Abstract

We propose a novel framework to identify distressed households by taking account of both the solvency and the liquidity situation of an individual household. Using the data from the Household Finance and Consumption Survey and the country-level data on non-performing loans we calibrate our metric of distress and estimate stress-test elasticities in response to an interest rate shock, an income shock and a house price shock. We find that, albeit euro area households are relatively resilient as a whole, there are large discrepancies in the impact of macroeconomic shocks across countries. Furthermore, while losses given default as calculated using our framework are low, they are sensitive to house prices changes. Hence, any factors hindering the seizure of the collateral or lowering its value, such as inefficient legal systems, moratoria on foreclosures or bottlenecks in judicial procedures may significantly increase losses facing banks. Finally, we demonstrate that our framework could be used for macroprudential purposes, in particular for the calibration of country level loan-to-value ratio caps.

No. 1722
20 August 2014
How do households allocate their assets? Stylised facts from the Eurosystem household finance and consumption survey

Abstract

JEL Classification

D1 : Microeconomics→Household Behavior and Family Economics

D3 : Microeconomics→Distribution

Abstract

Using the first wave of the Eurosystem Household Finance and Consumption Survey (HFCS), a large micro-level dataset on households

No. 1718
18 August 2014
The impact of housing non-cash income on the unconditional distribution of household income in Austria

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

Abstract

We estimate non-cash income from owner occupied housing, subsidized rental housing, or free use of one's main residence and evaluate their impact on the unconditional distribution of household income and selected inequality measures. We confirm the standard finding in the literature that imputed rents accruing to home owners have an equalizing effect on the distribution of income and find similar evidence for non-cash income from subsidized rents. Whereas imputed rents equalize the upper part of the income distribution, subsidized housing has an equalizing effect on the lower part of the income distribution. Overall, the effect of non-cash income from owner occupied housing clearly dominates the distributional effects, which translates into a combined effect of around 15% higher income for the bottom half and around 10% for the upper half of the unconditional income distribution. Our data provide us with the rare opportunity to apply all three commonly used approaches to calculate imputed rents for owner occupiers: capital-, self-assessment and equivalent rent approach. We find that using the equivalent rent approach leads to the strongest reduction in income inequality.

No. 1709
6 August 2014
Wealth and income in the euro area: Heterogeneity in households' behaviours?

Abstract

JEL Classification

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

C35 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Discrete Regression and Qualitative Choice Models, Discrete Regressors, Proportions

Abstract

This article aims at linking the household wealth and income distributions for 15 European countries using the Household Finance and Consumption Survey. We study the role played by the household

No. 1705
4 August 2014
Household heterogeneity in the euro area since the onset of the great recession

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

Abstract

We extend household-level data from the Household Finance and Consumption Survey using aggregate series and micro-simulations to investigate heterogeneity in the euro area. We quantify shocks to wealth, income and financial pressure faced by various categories of households since the onset of the Great Recession. The shocks differ substantially both across countries and across economic and socio-demographic characteristics. We find that the rising unemployment rate disproportionately affected the income-poor, while the declining wealth the income-rich. Although borrowers benefited from the substantial decrease in interest rates, debt service-income and debt-income ratios for poor households went up as they faced falling incomes. Household deleveraging was primarily driven by the restrained mortgage borrowing by the young. In several countries and at the euro-area level the unprecedented declines in asset prices substantially contributed to the sluggish consumption growth driven by both rich and poor households: while the former were hit by large shocks to wealth, the latter also significantly cut their spending because of their high MPCs.

No. 1692
14 July 2014
How fat is the top tail of the wealth distribution?

Abstract

JEL Classification

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

Abstract

The US Survey of Consumer Finances (SCF) and the Eurosystem

No. 1690
11 July 2014
Household wealth in the euro area: the importance of intergenerational transfers, homeownership and house price dynamics

Abstract

JEL Classification

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

O52 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Europe

C42 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Survey Methods

Abstract

Results from the Eurosystem Household Finance and Consumption Survey reveal substantial variation in household net wealth across euro area countries that await explanation. This paper focuses on three main factors for the wealth accumulation process, i) homeownership, ii) housing value appreciation and iii) intergenerational transfers. We show that these three factors, in addition to the common household and demographic factors, are relevant for the net wealth accumulation process in all euro area countries, and moreover that, using various decomposition techniques, differences therein, in particular in homeownership rates and house price dynamics, are important for explaining wealth differences across euro area countries.

No. 1673
13 May 2014
Micro and macro data: a comparison of the Household Finance and Consumption Survey with financial accounts in Austria

Abstract

JEL Classification

C80 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→General

D30 : Microeconomics→Distribution→General

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

Abstract

This paper compares the survey results on savings deposits and estimates on total financial assets from the Household Finance and Consumption Survey (HFCS) in Austria with administrative records from the national accounts for the household sector. The micro data newly generated through the HFCS and the detailed (internally available) breakdowns of savings deposits in the existing macro data (Financial Accounts) lend themselves to a more in-depth analysis of the similarities and differences in these two sources than what has been done in the literature so far. Cross-checking the data shows that the HFCS-based aggregate estimates differ from the financial accounts data, which is line with evidence from the literature, but additionally the paper adds to the literature that the underlying patterns have been captured adequately by the survey at the micro level. Moreover, a simulation based on the HFCS data serves to demonstrate the effect that the inclusion of savings deposits in the most affluent tail of the distribution has on common statistics. Undercoverage above all of the upper deposit ranges suggests an underestimation or bias in the statistics. This underestimation, however, can be shown to be relatively minor, in particular in the case of robust statistical measures such as the median or percentile ratios.

No. 1672
7 May 2014
Wealth differences across borders and the effect of real estate price dynamics: evidence from two household surveys

Abstract

JEL Classification

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

J61 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Geographic Labor Mobility, Immigrant Workers

F22 : International Economics→International Factor Movements and International Business→International Migration

R23 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics

R31 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Real Estate Markets, Spatial Production Analysis, and Firm Location→Housing Supply and Markets

Abstract

Crossing borders, be it international or regional, often go together with price, wage or indeed wealth discontinuities. This paper identifies substantial wealth differences between Luxembourg resident households and cross-border commuter households despite their similar incomes. The average (median) net wealth difference is estimated to be

No. 1664
2 April 2014
Tax deferral and mutual fund inflows - evidence from a quasi-natural experiment

Abstract

JEL Classification

G20 : Financial Economics→Financial Institutions and Services→General

G2 : Financial Economics→Financial Institutions and Services

H2 : Public Economics→Taxation, Subsidies, and Revenue

Abstract

We propose a new method to identify the impact of a change in the tax burden on mutual fund inflows, exploiting a switch from an accrual-based to a realisation-based tax regime. We use quasi-experimental data from Italy where, starting from July 2011, the tax regime for domestic mutual funds was changed from an accruals basis to a realisation basis, while the taxation of foreign funds remained on a realisation basis. We find that the reform has had a positive effect on net inflows of Italian funds (the treated group) with respect to foreign funds (the control group). The effect is both economically and statistically significant. Moreover, we find no evidence that the increase in the demand for Italian funds came at the expense of foreign funds.

No. 1663
1 April 2014
Net wealth across the euro area - why household structure matters and how to control for it

Abstract

JEL Classification

D30 : Microeconomics→Distribution→General

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

Abstract

We study the link between household structure and cross country differences in the wealth distribution using a recently compiled data set for the euro area (HFCS). We estimate counterfactual distributions using non-parametric re-weighting to examine the extent to which differences in the unconditional distributions of wealth across euro area countries can be explained by differences in household structure. We find that imposing a common household structure has strong effects on both the full unconditional distributions as well as its mappings to different inequality measures. For the median 50% of the differences are explained for Austria, 15% for Germany, 25% for Italy, 14% for Spain and 38% for Malta. For others as Belgium, France, Greece, Luxembourg, Portugal, Slovenia and Slovakia household structure masks the differences to the euro area median and Finland and the Netherlands change their position from below to above the euro area median. The impact on the mean and percentile ratios is similarly strong and varies with regard to direction and level across countries and their distributions. We can confirm the finding of Bover (2010) that the effect on the Gini is somewhat less pronounced, but might mask relevant information by being a net effect of different accumulated effects along the distribution. Country rankings based on almost all of these measures are severely affected alluding to the need for cautious interpretation when dealing with such rankings. Furthermore, the explanatory power of household structure changes along the net wealth distribution. Therefore we argue for more flexible controls for household structure. We provide such a set of controls to account for household type fixed effects which are based on the number of household members as well as possible combinations of age categories and gender.

No. 1662
1 April 2014
Wealth shocks, credit-supply shocks, and asset allocation: evidence from household and firm portfolios

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D13 : Microeconomics→Household Behavior and Family Economics→Household Production and Intrahousehold Allocation

G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

Abstract

We use a unique dataset with bank clients

No. 1661
31 March 2014
Cross-border commuting and consuming: an empirical investigation

Abstract

JEL Classification

F15 : International Economics→Trade→Economic Integration

R12 : Urban, Rural, Regional, Real Estate, and Transportation Economics→General Regional Economics→Size and Spatial Distributions of Regional Economic Activity

R23 : Urban, Rural, Regional, Real Estate, and Transportation Economics→Household Analysis→Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics

J61 : Labor and Demographic Economics→Mobility, Unemployment, Vacancies, and Immigrant Workers→Geographic Labor Mobility, Immigrant Workers

Abstract

This paper analyses empirically how cross-border consumption varies across product and services categories and across household characteristics. It focuses on the part of cross-border sales that arise due to work-related cross-border crossings; it analyses the cross-border consumption behaviour of cross-border commuter households residing in Belgium, France and Germany and working in Luxembourg. In total, it is estimated that these households spend

No. 1660
27 March 2014
U.S. consumer demand for cash in the era of low interest rates and electronic payments

Abstract

JEL Classification

E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money

E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems

Abstract

U.S. consumers

No. 1657
17 March 2014
The costs and beliefs impliedby direct stock ownership

Abstract

JEL Classification

G02 : Financial Economics→General→Behavioral Finance: Underlying Principles

G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions

Abstract

This paper develops a structural model of the costs and beliefs required to rationalize household direct stock ownership. In the model, households believe they can learn information about individual stock returns through costly research. The model provides a novel explanation for many empirical features of household portfolios. Further, the model identifies the distributions of both household research costs and household beliefs about the predictability of individual stock returns. Identification depends only on households

No. 1656
14 March 2014
Consumption inequality and family labor supply

Abstract

JEL Classification

D11 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Theory

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving

Abstract

In this paper we examine the link between wage inequality and consumption inequality using a life cycle model that incorporates household consumption and family labour supply decisions. We derive analytical expressions based on approximations for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, non-separability and asset accumulation decisions. We show how the model can be estimated and identified using panel data for hours, earnings, assets and consumption. We focus on the importance of family labour supply as an insurance mechanism to wage shocks and find strong evidence of smoothing of male

No. 1655
14 March 2014
The distribution of wealth and the marginal propensity to consume

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

Abstract

We present a macroeconomic model calibrated to match both microeconomic and macroeconomic evidence on household income dynamics. When the model is modified in a way that permits it to match empirical measures of wealth inequality in the U.S., we show that its predictions (unlike those of competing models) are consistent with the substantial body of microeconomic evidence which suggests that the annual marginal propensity to consume (MPC) is much larger than the 0.02_0.04 range implied by commonly-used macroeconomic models. Our model also (plausibly) predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across categories of households (e.g., low-wealth versus high-wealth households).

No. 1652
12 March 2014
Macroeconomic experiences and risk taking of euro area households

Abstract

JEL Classification

D03 : Microeconomics→General→Behavioral Microeconomics, Underlying Principles

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

D83 : Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief

G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions

Abstract

This paper studies to what extent the experiences of households shape their willingness to take financial risks. It follows the methodology of Malmendier and Nagel (2011) and applies it to a novel data set on household finances covering euro area households. We show that experienced stock market returns matter in a statistically significant and economically substantial fashion: better experiences increase the financial risk households are willing to take as well as stock market participation along the intensive and the extensive margin. We find that more distant experiences receive a somewhat lower (but still substantial) weight than the corresponding findings suggest for the United States. Furthermore, there are additional effects stemming from the experience of extreme stock market downturns. Households in countries that witnessed a particularly severe 2008 stock market crash give substantially more weight to the most recent experience, suggesting that in these countries an even more pronounced underinvestment in the stock market should be expected in the years to come. The evidence highlights the relevance of personal experiences for household behaviour.

No. 1648
10 March 2014
The Distribution of wealth and the MPC: implications of new European data

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

Abstract

Using new micro data on household wealth from fifteen European countries, the Household Finance and Consumption Survey, we first document the substantial cross-country variation in how various measures of wealth are distributed across individual households. Through the lens of a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks we then study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). We find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks and (iii) when we consider households only using liquid assets (rather than net wealth) to smooth consumption.

No. 1639
20 February 2014
The distribution of debt across euro area countries: the role of individual characteristics, institutions and credit conditions

Abstract

JEL Classification

D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation

K35 : Law and Economics→Other Substantive Areas of Law→Personal Bankruptcy Law

Abstract

The aim of this paper is twofold. First, we present an up-to-date assessment of the differences across euro area countries in the distributions of various measures of debt conditional on household characteristics. We consider three different outcomes: the probability of holding debt, the amount of debt held and, in the case of secured debt, the interest rate paid on the main mortgage. Second, we examine the role of legal and economic institutions in accounting for these differences. We use data from the first wave of a new survey of household finances, the Household Finance and Consumption Survey, to achieve these aims. We find that the patterns of secured and unsecured debt outcomes vary markedly across countries. Among all the institutions considered the length of asset repossession periods best accounts for the features of the distribution of secured debt. In countries with longer repossession periods, the fraction of people who borrow is smaller, the youngest group of households borrow lower amounts (conditional on borrowing), and the mortgage interest rates paid by low-income households are higher. Regulatory loan-to-value ratios, the taxation of mortgages and the prevalence of interest-only or fixed rate mortgages deliver less robust results.

No. 1631
29 January 2014
Household risk management and actual mortgage choice in the euro area

Abstract

JEL Classification

D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis

E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects

E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy

G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages

Abstract

Mortgages constitute the largest part of household debt. An essential choice when taking out a mortgage is between fixed-interest-rate mortgages (FRMs) and adjustable-interest-rate mortgages (ARMs). However, so far, no comprehensive cross-country study has analysed what determines household demand for mortgage types, a task that this paper takes up using new data for the euro area. Our results support the hypothesis of Campbell and Cocco (2003) that the decision is best described as one of household risk management: income volatility reduces the take-out of ARMs, while increasing duration and relative size of the mortgages increase it. Controlling for other supply factors through country fixed effects, loan pricing also matters, as expected, with ARMs becoming more attractive when yield spreads rise. The paper also conducts a simulation exercise to identify how the easing of monetary policy during the financial crisis affected mortgage holders. It shows that the resulting reduction in mortgage rates produced a substantial decline in debt burdens among mortgage-holding households, especially in countries where households have higher debt burdens and a larger share of ARMs, as well as for some disadvantaged groups of households, such as those with low income.

No. 1619
27 November 2013
Micro and macro analysis on household income, wealth and saving in the euro area
Published in: Journal of Economic and Social Policy, Vol 15, 2013, Iss. 2, Article 3,

Abstract

JEL Classification

D30 : Microeconomics→Distribution→General

D31 : Microeconomics→Distribution→Personal Income, Wealth, and Their Distributions

E01 : Macroeconomics and Monetary Economics→General→Measurement and Data on National Income and Product Accounts and Wealth, Environmental Accounts

E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth

Abstract

The report on the Measurement of Economic Performance and Social Progress by Stiglitz, Sen and Fitoussi concludes that in the measurement of household welfare all material components should be covered, i.e. consumption, income and wealth, from both the micro as well as the macro perspective. Additionally, several other initiatives like the G20 finance ministers