Search Results
Briefing
Monetary Policy across Space and Time
Many major macroeconomic events have occurred across multiple countries. This Economic Brief looks at similarities and differences among the euro area, the United Kingdom, and the United States and finds that macroeconomic variables tend to become more interconnected during periods of financial distress. Movements in monetary policy are highly correlated across all three regions. In addition, inflation and unemployment become less responsive to monetary policy shocks over time.
Journal Article
On-Time Mortgage Payments Recover, Even in Financially Distressed Areas
During the COVID-19 recession, mortgage repayment rates fell further in areas with high levels of financial distress, but they also recovered faster.
Working Paper
Firm Exit and Liquidity: Evidence from the Great Recession
This paper studies the role of credit constraints in accounting for the dynamics of firm exit during the Great Recession. We present novel firm-level evidence on the role of credit constraints on exit behavior during the Great Recession. Firms in financial distress, with tighter access to credit, are more likely to default than firms with more access to credit. This difference widened substantially in the Great Recession while, in contrast, default rates did not vary much by size, age, or productivity. We identify conditions under which standard models of firms subject to financial frictions ...
Working Paper
The Persistence of Financial Distress
Using recently available proprietary panel data, we show that while many (35%) US consumers experience financial distress at some point in the life cycle, most of the events of financial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble. Roughly 10% of consumers are distressed for more than a quarter of the life cycle, and less than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of ...
Working Paper
Does education loan debt influence household financial distress? An assessment using the 2007-09 SCF Panel
This paper uses the recent 2007-09 SCF panel to examine the influence of student loans on financial distress. Families with student loans in 2007 have higher levels of financial distress than families without such loans, and these families were more susceptible to transitions to financial distress during the early stages of the Great Recession. This correlation persists once we control for a host of other demographic, work-status, and household balance sheet measures. Families with an average level of student loans were 3.1 percentage points more likely to be 60 days late paying bills and 3 ...
Working Paper
Peers’ Income and Financial Distress: Evidence from Lottery Winners and Neighboring Bankruptcies
SUPRSEDES WP 18-16 We examine whether relative income differences among peers can generate financial distress. Using lottery winnings as plausibly exogenous variations in the relative income of peers, we find that the dollar magnitude of a lottery win of one neighbor increases subsequent borrowing and bankruptcies among other neighbors. We also examine which factors may mitigate lenders? bankruptcy risk in these neighborhoods. We show that bankruptcy filers obtain more secured but not unsecured debt, and lenders provide additional credit to low-risk but not high-risk debtors. In addition, we ...
Working Paper
The Effects of Macroeconomic Shocks: Household Financial Distress Matters
When a macroeconomic shock arrives, variation in household balance-sheet health (captured by the presence of financial distress “FD”), leads to differential access to credit, and hence a distribution of consumption responses. As we document, though, over the past two recessions, households in prior FD also experienced macroeconomic shocks more intensely than others, leading to a distribution of shock severity. Quantifying the importance of each dimension of heterogeneity (FD or shock severity) for consumption requires a structural model. We find that heterogeneity in FD matters more than ...
Financial Distress and the Second Wave of COVID-19 Infections
States hit by the second wave are seeing new cases grow more rapidly in counties with higher financial distress.
Working Paper
The Effects of the Massachusetts Health Reform on Financial Distress
A major benefit of health insurance coverage is that it protects the insured from unexpected medical costs that may devastate their personal finances. In this paper, we use detailed credit report information on a large panel of individuals to examine the effect of a major health care reform in Massachusetts in 2006 on a broad set of financial outcomes. The Massachusetts model served as the basis for the Affordable Care Act and allows us to examine the effect of coverage on financial outcomes for the entire population of the uninsured, not just those with very low incomes. We exploit plausibly ...
Working Paper
Debtor Fraud in Consumer Debt Renegotiation
We study how forcing financially distressed consumer debtors to repay a larger fraction of debt can lead them to misreport data fraudulently. Using a plausibly exogenous policy change that required debtors to increase repayment to creditors, we document that debtors manipulated data to avoid higher repayment. Consistent with deliberate fraud, data manipulators traveled farther to find more lenient insolvency professionals who, historically, approved more potentially fraudulent filings. Finally, we find that those debtors who misreported income had a lower probability of default on their debt ...