Central Bank publishes new economic research from second Quarterly Bulletin

The Central Bank of Ireland has published the series of signed articles from the second Quarterly Bulletin, due to be published on 6 April.

The balancing act: household indebtedness over the lifecycle

This article by Apostolos Fasianos, Reamonn Lydon and Tara McIndoe-Calder examines household indebtedness immediately after the Global Financial Crisis by comparing Ireland, the UK, the US and the Euro Area.

The paper is the first to examine this type of cross country analysis of household debt burdens and its distribution across different household types.

The research finds:

• Compared to other countries, Irish borrowers born from the mid-1960s through to the early 1980s have substantially higher levels of debt.
• Despite substantial and on-going deleveraging in Ireland, it is unlikely that the high debt levels for boom-time borrowers will fall significantly in the near-term.
• Debt in Ireland is more concentrated in property, particularly for those whose debts outweigh their assets, than for comparator households in the US, UK or EA. This means that the majority of debt held in Ireland is secured, on assets whose prices are rising; unlike the most vulnerable households in the US and the UK who hold a variety of unsecured debt including loans related to medical and education borrowing.
• The low interest environment since 2008 has been particularly beneficial to these highly indebted households. However, a far greater proportion of Irish borrowers on variable rate loans are exposed to potential interest rate hikes in the future.

A short discussion on the findings of the research is available on the Central Bank’s YouTube Channel.

The associated Research Technical Paper by Reamonn Lydon and Tara McIndoe-Calder and Economic Letter by Reamonn Lydon and Fergal McCann have also been published.

The Role of Macroprudential Indicators in Monitoring Systemic Risk and Setting Policy

This paper by Ellen Ryan discusses the Central Bank’s approach to the use of macroprudential indicators in policy setting and monitoring systemic risk. Monitoring systemic risk is at the core of the Central Bank’s responsibilities as a macroprudential authority.

This article highlights:

• Systemic risk can take many forms and has both time and structural dimensions. Due to the dynamic nature of the financial system, it is also likely to evolve over time. As a result, the monitoring of systemic risk requires a multifaceted approach and a wide range of indicators.
• The Central Bank has constructed over 80 indicators required to monitor systemic risk. These are centrally stored in a database and are mapped onto types of risk through its structure, which categorises indicators in line with the Central Bank’s intermediate objectives of macroprudential policy.
• While these indicators are used throughout the policy making process, they are not mechanically tied to policy decisions and policy maker judgement also plays a central role.
• The effectiveness of these indicators can be further enhanced by examining indicator values associated with elevated risk levels and through the use of visualisation methods, such as heatmaps.

Monitoring Ireland’s Payments using TARGET2

This article by Claire Downey, Paul Lyons and Terry O’Malley describes TARGET2-IE, Ireland’s component of the Eurosystem’s large value payment system (TARGET2).

The article highlights:

• How close monitoring of payments data can confer a deeper understanding of the components that contribute to the smooth functioning of the Irish economy and a stable financial system.
• The underlying makeup of Ireland’s interbank and customer payment networks.
• Bank connections arising from payment flows between banks and introduce indicators for systemic risk monitoring. The indicators provide information on the relative importance of banks in the networks, liquidity conditions; key connections and payment inflows and outflows.

Notes

The views expressed in these articles are not necessarily those held by the Central Bank of Ireland.