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Personal-bankruptcy cycles

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  • Thomas A. Garrett
  • Howard J. Wall

Abstract

This paper estimates the dynamics of the personal-bankruptcy rate over the business cycle by exploiting large cross-state variation in recessions and bankruptcies. We find that bankruptcy rates are significantly higher than normal during a recession and rise as a recession persists. After a recession ends, there is a hangover whereby bankruptcy rates begin to fall but remain above normal for several more quarters. Recovery periods see a strong bounce-back effect with bankruptcy rates significantly below normal for several quarters. Despite the significant increases in bankruptcies that occur during recessions, the largest contributor to rising bankruptcies during these periods has tended to be the longstanding upward trend.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2010-010.

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Date of creation: 2010
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Handle: RePEc:fip:fedlwp:2010-010

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Keywords: Bankruptcy ; Finance; Personal;

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  1. A. Rampini, Adriano, 2005. "Default and aggregate income," Journal of Economic Theory, Elsevier, vol. 122(2), pages 225-253, June.
  2. Igor Livshits & James MacGee & Michèle Tertilt, 2010. "Accounting for the Rise in Consumer Bankruptcies," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 165-93, April.
  3. Thomas A. Garrett & Mark W. Nichols, 2006. "Do Casinos Export Bankruptcy?," Working Papers 06-003, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics.
  4. Scott Fay & Erik Hurst & Michelle J. White, 2002. "The Household Bankruptcy Decision," American Economic Review, American Economic Association, vol. 92(3), pages 706-718, June.
  5. Jonathan D. Fisher, 2005. "The Effect Of Unemployment Benefits, Welfare Benefits, And Other Income On Personal Bankruptcy," Contemporary Economic Policy, Western Economic Association International, vol. 23(4), pages 483-492, October.
  6. Jon P. Nelson, 1999. "Consumer Bankruptcy And Chapter Choice: State Panel Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 17(4), pages 552-566, October.
  7. Chang-Jin Kim & James Morley & Jeremy Piger, 2003. "Nonlinearity and the permanent effects of recessions," Working Papers 2002-014, Federal Reserve Bank of St. Louis.
  8. Donald P. Morgan & Benjamin Iverson & Matthew Botsch, 2008. "Seismic effects of the bankruptcy reform," Staff Reports 358, Federal Reserve Bank of New York.
  9. Reint Gropp & John Karl Scholz & Michelle White, 1996. "Personal Bankruptcy and Credit Supply and Demand," NBER Working Papers 5653, National Bureau of Economic Research, Inc.
  10. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  11. Lars Lefgren & Frank McIntyre, 2009. "Explaining the Puzzle of Cross-State Differences in Bankruptcy Rates," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 367-393, 05.
  12. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 175-200, Fall.
  13. Theodore M. Crone & Alan Clayton-Matthews, 2005. "Consistent Economic Indexes for the 50 States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 593-603, November.
  14. Michael T. Owyang & Jeremy Piger & Howard J. Wall & Federal Reserve Bank of St. Louis, 2006. "A State-Level Analysis of the Great Moderation," Computing in Economics and Finance 2006 131, Society for Computational Economics.
  15. Richard Thalheimer & Mukhtar M. Ali, 2004. "The Relationship of Pari-mutuel Wagering and Casino Gaming to Personal Bankruptcy," Contemporary Economic Policy, Western Economic Association International, vol. 22(3), pages 420-432, 07.
  16. Ian Domowitz & Robert L. Sartain, 1999. "Determinants of the Consumer Bankruptcy Decision," Journal of Finance, American Finance Association, vol. 54(1), pages 403-420, 02.
  17. John M. Barron & Michael E. Staten & Stephanie M. Wilshusen, 2002. "The Impact Of Casino Gambling On Personal Bankruptcy Filing Rates," Contemporary Economic Policy, Western Economic Association International, vol. 20(4), pages 440-455, October.
  18. Thomas A. Garrett, 2007. "The rise in personal bankruptcies: the Eighth Federal Reserve District and beyond," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 15-38.
  19. Michael T. Owyang & Jeremy M. Piger & Howard J. Wall, 2004. "Business cycle phases in U.S. states," Working Papers 2003-011, Federal Reserve Bank of St. Louis.
  20. Michelle J. White, 2007. "Bankruptcy Reform and Credit Cards," NBER Working Papers 13265, National Bureau of Economic Research, Inc.
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