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

  • Roberto Álvarez
  • Luis Opazo

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.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 695.

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Date of creation: Jul 2013
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Handle: RePEc:chb:bcchwp:695
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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 National Bureau of Economic Research, Inc.
  2. Thomas Philippon & Virgiliu Midrigan, 2013. "Household Leverage and the Recession," 2013 Meeting Papers 335, Society for Economic Dynamics.
  3. Atif R. Mian & Amir Sufi, 2010. "Household Leverage and the Recession of 2007 to 2009," NBER Working Papers 15896, National Bureau of Economic Research, Inc.
  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, December.
  5. Michael Hurd & Susann Rohwedder, 2010. "Effects of the Financial Crisis and Great Recession on American Households," Working Papers 810, RAND Corporation Publications Department.
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