Macroeconomic Factors of Household Default. Is There Myopic Behaviour?

The purpose of this paper is to study the family financial distress in Portugal, using quarterly observations, in a period from 2002 to 2010, by analysing the macroeconomic determinants of the Household Default rate, for which we take a logit transformation. Ordinary least squares are used. The default determinants considered are Euribor rate, Gross Domestic Product (GDP) growth rate (gdpgr) and unemployment rate. The distinctive feature of this paper is the decomposition of gdpgr in a short term and a long term components and the substitution of gdpgr for its long term component as a regressor which improves the adjustment of the regression. The signs of the coefficients are the ones expected according to economic theory, except for Euribor rate, which may be due to its pro-cyclical behaviour with respect to economic activity. Taking into account the distinct characterization with respect to stationarity of the different variables, the estimation of the relation between household default rate and its factors has to be done in two stages: first a regression on the integrated variables, and then a regression of the residuals of the first regression on the stationary variables. It is detected a more pronounced effect of the long term component of gdpgr and a perverse influence (although it may be spurious) of the short term component of gdpgr on default, which, jointly, suggests the existence of myopic behaviour by the families. It is analysed the joint evolution of these variables to detect possible interactions between them. Namely, the paradoxical role of Euribor rate is explained by its correlation with the other regressors.