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The Persistence of Financial Distress

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  • Kartik Athreya
  • José Mustre-del-Río
  • Juan M Sánchez

Abstract

Using proprietary panel data, we show that many U.S. consumers experience financial distress (35% when distress is defined by having debt in severe delinquency, e.g.) at some point in their lives. However, most distress events are concentrated on a much smaller proportion of consumers in persistent trouble: fewer 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 unsecured debt with informal default that accommodates a simple form of heterogeneity in time preference.Received November 10, 2017; editorial decision November 12, 2018 by Editor Stijn Van Nieuwerburgh.

Suggested Citation

  • Kartik Athreya & José Mustre-del-Río & Juan M Sánchez, 2019. "The Persistence of Financial Distress," Review of Financial Studies, Society for Financial Studies, vol. 32(10), pages 3851-3883.
  • Handle: RePEc:oup:rfinst:v:32:y:2019:i:10:p:3851-3883.
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    Cited by:

    1. Kartik B. Athreya & Ryan Mather & Jose Mustre-del-Rio & Juan M. Sanchez, 2019. "Household Financial Distress and the Burden of “Aggregate” Shocks," Working Papers 2019-025, Federal Reserve Bank of St. Louis, revised 10 Sep 2020.
    2. Kyle F. Herkenhoff & Gajendran Raveendranathan, 2019. "Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry," Working Papers 2019-071, Human Capital and Economic Opportunity Working Group.
    3. Kartik B. Athreya & Ryan Mather & Jose Mustre-del-Rio & Juan M. Sanchez, 2019. "Consumption in the Great Recession: The Financial Distress Channel," Working Paper 19-13, Federal Reserve Bank of Richmond, revised 29 Aug 2019.
    4. Olga Gorbachev & María José Luengo-Prado, 2019. "The Credit Card Debt Puzzle: The Role of Preferences, Credit Access Risk, and Financial Literacy," The Review of Economics and Statistics, MIT Press, vol. 101(2), pages 294-309, May.
    5. Roth, Paula, 2020. "Inequality, Relative Deprivation and Financial Distress: Evidence from Swedish Register Data," Working Paper Series 1374, Research Institute of Industrial Economics.
    6. Kyle Dempsey & Felicia Ionescu, 2019. "Lending Standards and Consumption Insurance over the Business Cycle," 2019 Meeting Papers 1428, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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