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Household Debt During the Financial Crisis: Micro-Evidence from Chile

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  • Roberto Álvarez
  • Luis Opazo

Abstract

We examine evidence from a data panel from 2006 to 2009 to explore how chilean households were affected by the negative income shock observed during the recent financial crisis. our results show that there is a negative and significant relationship between income shocks and changes in consumption debt. this suggests that increasing debt allowed households to smooth consumption during the financial crisis and provides new empirical evidence about the importance of financial constraints in a developing country. we find evidence of heterogeneous effects by type of consumption debt and across households. our results show that reduction in income increased indebtedness with banking institutions, but not with non-banking creditors. across households, these results are driven mainly by those with financial assets and low levels of indebtedness before the crisis.

Suggested Citation

  • Roberto Álvarez & Luis Opazo, 2013. "Household Debt During the Financial Crisis: Micro-Evidence from Chile," Working Papers Central Bank of Chile 695, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:695
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    References listed on IDEAS

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    1. Rajashri Chakrabarti & Donghoon Lee & Wilbert van der Klaauw & Basit Zafar, 2013. "Household Debt and Saving during the 2007 Recession," NBER Chapters,in: Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, pages 273-322 National Bureau of Economic Research, Inc.
    2. Midrigan, Virgiliu & Philippon, Thomas, 2011. "Household Leverage and the Recession," CEPR Discussion Papers 8381, C.E.P.R. Discussion Papers.
    3. Atif Mian & Amir Sufi, 2011. "Household Leverage and the Recession of 2007 to 2009," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 7, pages 125-173.
    4. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, November.
    5. Michael D. Hurd & Susann Rohwedder, 2010. "Effects of the Financial Crisis and Great Recession on American Households," NBER Working Papers 16407, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Fernando Borraz & Nicolás González Pampillón, 2015. "Financial Risk of Uruguayan Households," Documentos de trabajo 2015007, Banco Central del Uruguay.

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