IDEAS home Printed from https://ideas.repec.org/p/fip/fedcwp/1406.html
   My bibliography  Save this paper

Household Finance after a Natural Disaster: The Case of Hurricane Katrina

Author

Listed:
  • Justin Gallagher
  • Daniel Hartley

Abstract

Little is known about how affected residents are able to cope with the fi nancial shock of a natural disaster. We investigate the impact that flooding from a major US hurricane had on household finance. Spikes in credit card borrowing and overall delinquency rates for the most flooded residents are modest in size and short-lived. Greater flooding results in larger reductions in total debt. Lower debt levels appear to be driven by homeowners using flood insurance to repay their mortgages rather than to rebuild. Debt reductions are larger in census tracts where mortgages were likely to be originated by nonlocal lenders.

Suggested Citation

  • Justin Gallagher & Daniel Hartley, 2014. "Household Finance after a Natural Disaster: The Case of Hurricane Katrina," Working Papers (Old Series) 1406, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1406
    DOI: 10.26509/frbc-wp-201406
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-wp-201406
    File Function: Persistent Link
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-wp-201406?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Tullio Jappelli & Luigi Pistaferri, 2010. "The Consumption Response to Income Changes," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 479-506, September.
    2. Jeffrey A. Groen & Anne E. Polivka, 2008. "The Effect of Hurricane Katrina on the Labor Market Outcomes of Evacuees," American Economic Review, American Economic Association, vol. 98(2), pages 43-48, May.
    3. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 149-185.
    4. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
    5. Intergovernmental Panel on Climate Change IPCC, 2008. "Intergovernmental Panel on Climate Change: Fourth Assessment Report: Climate Change 2007: Synthesis Report," Working Papers id:1325, eSocialSciences.
    6. Tufan Ekici & Lucia Dunn, 2010. "Credit card debt and consumption: evidence from household-level data," Applied Economics, Taylor & Francis Journals, vol. 42(4), pages 455-462.
    7. Hoyt Bleakley & Jeffrey Lin, 2012. "Portage and Path Dependence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 587-644.
    8. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
    9. Christina Paxson & Cecilia Rouse, 2008. "Returning to New Orleans after Hurricane Katrina," Working Papers 1052, Princeton University, Department of Economics, Center for Economic Policy Studies..
    10. Dwight Jaffee & Thomas Russell, 2013. "The Welfare Economics of Catastrophe Losses and Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(3), pages 469-494, July.
    11. Tatyana Deryugina & Laura Kawano & Steven Levitt, 2018. "The Economic Impact of Hurricane Katrina on Its Victims: Evidence from Individual Tax Returns," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 202-233, April.
    12. James X. Sullivan, 2008. "Borrowing During Unemployment: Unsecured Debt as a Safety Net," Journal of Human Resources, University of Wisconsin Press, vol. 43(2), pages 383-412.
    13. Morse, Adair, 2011. "Payday lenders: Heroes or villains?," Journal of Financial Economics, Elsevier, vol. 102(1), pages 28-44, October.
    14. repec:pri:cepsud:168rouse is not listed on IDEAS
    15. Erwann O. Michel‐Kerjan & Carolyn Kousky, 2010. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 369-397, June.
    16. Christina Paxson & Cecilia Rouse, 2008. "Returning to New Orleans after Hurricane Katrina," Working Papers 1126, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Health and Wellbeing..
    17. Sumit Agarwal, 2010. "Distance and Private Information in Lending," Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2757-2788, July.
    18. Richard Hornbeck & Suresh Naidu, 2014. "When the Levee Breaks: Black Migration and Economic Development in the American South," American Economic Review, American Economic Association, vol. 104(3), pages 963-990, March.
    19. Jacob Vigdor, 2008. "The Economic Aftermath of Hurricane Katrina," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 135-154, Fall.
    20. Erwann Michel‐Kerjan & Sabine Lemoyne de Forges & Howard Kunreuther, 2012. "Policy Tenure Under the U.S. National Flood Insurance Program (NFIP)," Risk Analysis, John Wiley & Sons, vol. 32(4), pages 644-658, April.
    21. Emek Basker & Javier Miranda, 2014. "Taken By Storm: Business Survival In The Aftermath Of Hurricane Katrina," Working Papers 14-20, Center for Economic Studies, U.S. Census Bureau.
    22. Jeffrey Groen & Anne Polivka, 2010. "Going home after Hurricane Katrina: Determinants of return migration and changes in affected areas," Demography, Springer;Population Association of America (PAA), vol. 47(4), pages 821-844, November.
    23. Deryugina, Tatyana, 2011. "The Role of Transfer Payments in Mitigating Shocks: Evidence From the Impact of Hurricanes," MPRA Paper 53307, University Library of Munich, Germany, revised 08 Aug 2013.
    24. Emek Basker & Javier Miranda, 2014. "Taken by Storm: Business Financing, Survival, and Contagion in the Aftermath of Hurricane Katrina," Working Papers 1406, Department of Economics, University of Missouri, revised 23 Oct 2014.
    25. Justin Gallagher, 2014. "Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States," American Economic Journal: Applied Economics, American Economic Association, vol. 6(3), pages 206-233, July.
    26. repec:pri:cheawb:paxson_rouse_katrina_returns is not listed on IDEAS
    27. Jeffrey A. Groen & Anne E. Polivka, 2008. "The Effect of Hurricane Katrina on the Labor Market Outcomes of Evacuees," Working Papers 415, U.S. Bureau of Labor Statistics.
    28. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    29. Kaoru Hosono & Daisuke Miyakawa & Taisuke Uchino & Makoto Hazama & Arito Ono & Hirofumi Uchida & Iichiro Uesugi, 2016. "Natural Disasters, Damage To Banks, And Firm Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(4), pages 1335-1370, November.
    30. Donghoon Lee & Wilbert Van der Klaauw, 2010. "An introduction to the FRBNY Consumer Credit Panel," Staff Reports 479, Federal Reserve Bank of New York.
    31. Christina Paxson & Cecilia Elena Rouse, 2008. "Returning to New Orleans after Hurricane Katrina," American Economic Review, American Economic Association, vol. 98(2), pages 38-42, May.
    32. repec:pri:indrel:dsp0173666450b is not listed on IDEAS
    33. Christina Paxson & Cecilia E. Rouse, 2008. "Returning to New Orleans after Hurricane Katrina," Working Papers 1043, Princeton University, Department of Economics, Industrial Relations Section..
    34. Christina Paxson & Cecilia Rouse, 2008. "Returning to New Orleans after Hurricane Katrina," Working Papers 1052, Princeton University, Department of Economics, Center for Economic Policy Studies..
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johar, Meliyanni & Johnston, David W. & Shields, Michael A. & Siminski, Peter & Stavrunova, Olena, 2022. "The economic impacts of direct natural disaster exposure," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 26-39.
    2. Graff Zivin, Joshua & Liao, Yanjun & Panassié, Yann, 2023. "How hurricanes sweep up housing markets: Evidence from Florida," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    3. Barbieri, Stefano & Edwards, John H.Y., 2017. "Middle-class flight from post-Katrina New Orleans: A theoretical analysis of inequality and schooling," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 12-29.
    4. Jeffrey A. Groen & Anne E. Polivka, 2009. "Going Home after Hurricane Katrina: Determinants of Return Migration and Changes in Affected Areas," Working Papers 428, U.S. Bureau of Labor Statistics.
    5. Ning Jia & Raven Molloy & Christopher Smith & Abigail Wozniak, 2023. "The Economics of Internal Migration: Advances and Policy Questions," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 144-180, March.
    6. Daepp, Madeleine I.G. & Bunten, Devin Michelle & Hsu, Joanne W., 2023. "The Effect of Racial Composition on Neighborhood Housing Prices: Evidence from Hurricane Katrina-Induced Migration," Journal of Urban Economics, Elsevier, vol. 134(C).
    7. Adriana Kocornik-Mina & Thomas K. J. McDermott & Guy Michaels & Ferdinand Rauch, 2020. "Flooded Cities," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 35-66, April.
    8. Poutvaara, Panu & Ropponen, Olli, 2010. "School Shootings and Student Performance," IZA Discussion Papers 5009, Institute of Labor Economics (IZA).
    9. Marcel Henkel, Eunjee Kwon, Pierre Magontier, 2022. "The Unintended Consequences of Post-Disaster Policies for Spatial Sorting," Diskussionsschriften credresearchpaper37, Universitaet Bern, Departement Volkswirtschaft - CRED.
    10. Jeffrey A. Groen† & Mark J. Kutzbach & Anne E. Polivka‡, 2015. "Storms and Jobs: The Effect of Hurricanes on Individuals’ Employment and Earnings over the Long Term," Working Papers 15-21r, Center for Economic Studies, U.S. Census Bureau.
    11. Kelly D. Edmiston, 2017. "Financial Vulnerability and Personal Finance Outcomes of Natural Disasters," Research Working Paper RWP 17-9, Federal Reserve Bank of Kansas City.
    12. Sastry, Narayan & Gregory, Jesse, 2013. "The effect of Hurricane Katrina on the prevalence of health impairments and disability among adults in New Orleans: Differences by age, race, and sex," Social Science & Medicine, Elsevier, vol. 80(C), pages 121-129.
    13. Alistair Munro & Shunsuke Managi, 2017. "Going Back: Radiation and Intentions to Return amongst Households Evacuated after the Great Tohoku Earthquake," Economics of Disasters and Climate Change, Springer, vol. 1(1), pages 77-93, June.
    14. Narayan Sastry & Jesse Gregory, 2012. "The Location of Displaced New Orleans Residents in the Year After Hurricane Katrina," Working Papers 12-19, Center for Economic Studies, U.S. Census Bureau.
    15. Narayan Sastry & Jesse Gregory, 2014. "The Location of Displaced New Orleans Residents in the Year After Hurricane Katrina," Demography, Springer;Population Association of America (PAA), vol. 51(3), pages 753-775, June.
    16. Yuchen Hu & Harvey Cutler & Yihua Mao, 2023. "Economic Loss Assessment for Losses Due to Earthquake under an Integrated Building, Lifeline, and Transportation Nexus: A Spatial Computable General Equilibrium Approach for Shelby County, TN," Sustainability, MDPI, vol. 15(11), pages 1-24, May.
    17. Timothy K. M. Beatty & Jay P. Shimshack & Richard J. Volpe, 2019. "Disaster Preparedness and Disaster Response: Evidence from Sales of Emergency Supplies Before and After Hurricanes," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(4), pages 633-668.
    18. Shingo Nagamatsu & Adam Rose & Jonathan Eyer, 2020. "Return Migration and Decontamination After the 2011 Fukushima Nuclear Power Plant Disaster," Risk Analysis, John Wiley & Sons, vol. 40(4), pages 800-817, April.
    19. Heather Rosoff & Robert Siko & Richard John & William J. Burns, 2013. "Should I stay or should I go? An experimental study of health and economic government policies following a severe biological agent release," Environment Systems and Decisions, Springer, vol. 33(1), pages 121-137, March.
    20. Boustan, Leah Platt & Kahn, Matthew E. & Rhode, Paul W. & Yanguas, Maria Lucia, 2020. "The effect of natural disasters on economic activity in US counties: A century of data," Journal of Urban Economics, Elsevier, vol. 118(C).

    More about this item

    Keywords

    Household Finance; Insurance; Natural Disaster;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H84 - Public Economics - - Miscellaneous Issues - - - Disaster Aid
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:1406. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.