Household micro-data, regulation and financial stability: the case of Denmark in the 1950s (2016)
Author(s):
Kim Abildgren (Department
of Economics, Danmarks Nationalbank, Copenhagen, Denmark)
Abstract:
Purpose
The 1950s was characterised by pronounced stability of the
banking sector in many countries, which the existing literature has attributed
to tight regulation. However, other factors than regulation are important for
financial stability. The purpose of this paper is to consider the case of
Denmark and investigate whether the absence of banking crises was due to
robustness of the banking sector’s customers rather than tight regulation.
Design/methodology/approach
The paper analyses the resilience of Danish wage and salary
earners to adverse economic shocks in the 1950s based on household-level data
on income, consumption, savings and wealth from the Danish Expenditure and
Saving Survey of 1955.
Findings
The paper finds that the Danish household sector in the 1950s
had a high debt payment ability and was very robust to even large income
shocks. The results indicate that the stability of the Danish financial sector
was not only due to tight regulation but also reflected a high credit quality
of the banking sector’s loan portfolio.
Originality/value
During the past decade or so, a micro-data-based framework has
become the “state of the art” approach among central banks to analyse the
financial robustness of the household sector. However, such an approach has so
far not been applied in studies on historical financial-stability issues. The
paper adds to the literature by using granular household-level data to assess
the financial resilience of the Danish household sector in the 1950s.
Keywords:
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