Abstract
This paper introduces a micro-simulation framework that studies the financial vulnerability of euro area households. The framework updates micro-level household balance sheet data using macro-level information on unemployment, wages, inflation and market prices. Importantly, new mortgage contracts are created and existing ones are gradually repaid, while other balance sheet items are updated under a static balance sheet assumption. I show the use of the framework by (i) now-casting financial vulnerability indicators of euro area households in 2016, (ii) assessing this vulnerability under the most recent baseline and adverse macroeconomic scenario of the European Banking Authority, and (iii) assessing the impact of the capped LTV ratios on household financial distress.
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