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Stress Testing Household Debt in Korea
Author:
Ms. Meral Karasulu
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Series:
IMF Working Papers
Volume/Issue:
Volume 2008: Issue 255
Language:
English
Publication Date:
01 Nov 2008
DOI:
https://doi.org/10.5089/9781451871135.001
ISBN:
9781451871135
ISSN:
1018-5941
Pages:
21
Keywords:
WP; debt; interest rate; household debt
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2008: Issue 255