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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 ...
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 ...
Share of Americans in Financial Distress Reaches High Levels
A smaller share of Americans were in financial distress in 2021 than before the pandemic. Depending on the type of debt, the incidence of financial distress has returned to a high level in 2023.
Working Paper
The Persistence of Financial Distress.
Using recently available proprietary panel data, we show that while many (35%) US consumers experience fi nancial distress at some point in the life cycle, most of the events of nancial 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 the Relative Income of Peers Cause Financial Distress? Evidence from Lottery Winners and Neighboring Bankruptcies
SUPERSEDED BY WP 18-22 We examine whether relative income differences among peers can generate financial distress.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 can obtain secured but not unsecured debt, and lenders provide secured credit to low-risk but not high-risk debtors. In addition, we ...
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
Did the ACA's Dependent Coverage Mandate Reduce Financial Distress for Young Adults?
We analyze whether the passage of the Affordable Care Act's dependent coverage mandate in 2010 reduced financial distress for young adults. U sing nationally representative, anonymized consumer credit report information, we find that young adults covered by the mandate lowered their past due debt, had fewer delinquencies, and had a reduced probability of filing for bankruptcy. These effects are stronger in geographic areas that experienced higher uninsured rates for young adults prior to the mandate's implementation. Our estimates also show that some improvements are transitory because they ...
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
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 ...
Financial Hardship Following Hurricane Harvey
Financial constraints before the hurricane, homeownership status and the likelihood of having flood insurance altered the financial effects of flooding on families.