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A Spread-Based Measure of Household Financial Stress

Authors: Neth Karunamuni, Dasol Kim

A new OFR brief proposes a novel measure of household financial stress called the Household Financial Stress Measure (HFSM). The ability of household balance sheets to withstand adverse shocks has implications for economic and financial stability. Recent shocks tested the household sector’s resilience and highlighted the need for sharper stress indicators. Authors Neth Karunamuni and Dasol Kim construct the HFSM, a spread-based measure that distinguishes household stress due to financial versus non-financial factors. The HFSM explains more variation in proxies for stress than other commonly used measures and corresponds with various macroeconomic indicators.