The impact of the financial crisis on household financial vulnerability in Croatia

Commissioned by: The wiiw GDN-SEE-CIS Research Competition 2011 
Project duration: July, 2011 – December, 2012 
Project manager: Danijel Nestić, PhD 

Brief outline: 
This study proposed a new approach to household financial vulnerability analysis by employing cluster analysis techniques in the identification of potentially vulnerable households. The cluster-based vulnerability indicator was combined with a binary dependant variable model and used in stress testing. The proposed methodology was applied to household-level data for a post-socialist economy – that of Croatia – with the specific aim of testing the extent to which the prolonged economic downturn following the Great Recession of 2008-2009 might hurt indebted households. The study compared the results based on the new approach with those based on traditional stress testing methods. Interest rate shocks had a stronger impact on household vulnerability in the traditional approach, whereas decreases in employment were found to be more disruptive in the cluster-based approach.