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Households borrowing during a creditless recovery

  • Jaanika Meriküll


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    This paper investigates the contribution of households to the creditless recovery. We use Estonian cross-sectional microdata on households' assets, liabilities, income, expectations and intention to use credit in 2001-2010. The results indicate that (1) there was a large-scale drop in households demand for credit during the recession and sluggish recovery after the recession. (2) One third of the sluggish recovery in credit demand is explained by changed household endowments such as income reduction and lower income expectations, while two thirds is explained by changed behavioural relations such as renters taking mortgages less often and employed individuals using credit less often. (3) Changed behavioural relations explain a higher proportion of the credit demand drop in longer-term credit such as loans than in shorter-term credit such as credit card purchases. (4) 44% of households who wanted to use credit were credit constrained during the recovery and households with lower credit worthiness were more likely to apply for credit.

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    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number wp2012-2.

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    Date of creation: 22 Feb 2012
    Date of revision: 22 Feb 2012
    Handle: RePEc:eea:boewps:wp2012-2
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    1. Jordà, Òscar & Schularick, Moritz & Taylor, Alan M., 2011. "When Credit Bites Back: Leverage, Business Cycles, and Crises," CEPR Discussion Papers 8678, C.E.P.R. Discussion Papers.
    2. Bauer, Thomas & Sinning, Mathias, 2005. "Blinder-Oaxaca Decomposition for Tobit Models," CEPR Discussion Papers 5309, C.E.P.R. Discussion Papers.
    3. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2010. "Automatic stabilisers and economic crisis: US vs Europe," EUROMOD Working Papers EM2/10, EUROMOD at the Institute for Social and Economic Research.
    4. Bijsterbosch, Martin & Dahlhaus, Tatjana, 2011. "Determinants of credit-less recoveries," Working Paper Series 1358, European Central Bank.
    5. Matteo Iacoviello & Marina Pavan, 2011. "Housing and debt over the life cycle and over the business cycle," International Finance Discussion Papers 1032, Board of Governors of the Federal Reserve System (U.S.).
    6. John V. Duca & Stuart S. Rosenthal, 1993. "Borrowing constraints, household debt, and racial discrimination in loan markets," Research Paper 9312, Federal Reserve Bank of Dallas.
    7. Prakash Kannan, 2010. "Credit Conditions and Recoveries from Recessions Associated with Financial Crises," IMF Working Papers 10/83, International Monetary Fund.
    8. Alejandro Izquierdo & Ernesto Talvi & Guillermo A Calvo, 2006. "Phoenix miracles in emerging markets: recovering without credit from systemic financial crises," BIS Working Papers 221, Bank for International Settlements.
    9. Valerie Cerra & Sweta C. Saxena, 2005. "Growth Dynamics: The Myth of Economic Recovery," Macroeconomics 0508008, EconWPA.
    10. Silvia Magri, 2007. "Italian households’ debt: the participation to the debt market and the size of the loan," Empirical Economics, Springer, vol. 33(3), pages 401-426, November.
    11. 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.
    12. Tullio Jappelli, 1990. "Who is Credit Constrained in the U. S. Economy?," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 219-234.
    13. John Gathergood, . "Racial Disparities in Credit Constraints in the Great Recession: Evidence from the UK," Discussion Papers 11/09, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
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