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New working paper on households' financial position in the run-up to and aftermath of the financial crisis in Iceland

Working Paper no. 59, “Households’ position in the financial crisis in Iceland: Analysis based on a nationwide household-level database”, by Thorvardur Tjörvi Ólafsson and Karen Áslaug Vignisdóttir has been published. The paper presents results on the development of households’ financial position during the run-up to and aftermath of the financial crisis in Iceland. The analysis builds on a unique nationwide household-level database containing detailed information covering virtually all indebted households in the country. To the best of the authors’ knowledge, no analysis of this type has been carried out to date.

The analysis of households’ position centres on six issues. First, it assesses the extent and evolution of household financial distress; i.e., households whose disposable income is insufficient to cover both debt service and necessary minimum living expenses. Second, the authors analyse developments of the incidence of negative housing equity. Third, they analyse the share of households in the highly vulnerable position of being simultaneously in distress and negative housing equity. Fourth, the authors shed light on the main characteristics of vulnerable households in order to support policy-making in this area. Fifth, they analyse the effects of various debt restructuring measures, as well as court judgments declaring widely used exchange rate-linked loans illegal and in need of recalculation. Finally, the authors analyse to what extent imprudent lending to households already in distress in 2007-2008 increased their financial difficulties. The paper contains over a hundred figures, presenting a breakdown of the findings for various groups, classified according to factors such as income, currency-denomination of debt, family type, age, and place of residence. An international comparison is provided as well.

See the Central Bank of Iceland Working Papers here: Working papers