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What are the triggers for arrears on debt? Evidence from quarterly panel data

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  • Merike Kukk

Abstract

The paper investigates the triggers of arrears on debt in Estonia, which is a full recourse country similar to other euro area countries. An extensive individuallevel quarterly panel dataset enables quarterly debt repayment problems to be tracked while controlling for individual specific heterogeneity. The estimations show that lower income and higher debt service ratios are associated with a higher probability of arrears, confirming the “ability to pay†hypothesis. Newly taken consumer loans increase the probability of arrears and the relationship is stronger for loans granted during a recession when credit conditions were tight. Newly taken housing loans exhibit a lower probability of arrears and the same applies to loans granted during the period of easy credit conditions and high real estate prices. The results suggest that the most efficient measures for addressing arrears on debt would be those that mitigate income declines and the debt servicing burden

Suggested Citation

  • Merike Kukk, 2016. "What are the triggers for arrears on debt? Evidence from quarterly panel data," Bank of Estonia Working Papers wp2016-9, Bank of Estonia, revised 25 Nov 2016.
    • Handle: RePEc:eea:boewps:wp2016-9
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//file:///C:/Users/kasutaja/Downloads/wp09_2016.pdf
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    Citations

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    Cited by:

    1. Merike Kukk, 2019. "Debt repayment problems: short-term and long-term implications for spending," Review of Economics of the Household, Springer, vol. 17(2), pages 715-740, June.
    2. Erlend Nier & Radu Popa & Maral Shamloo & Liviu Voinea, 2019. "Debt Service and Default: Calibrating Macroprudential Policy Using Micro Data," IMF Working Papers 2019/182, International Monetary Fund.

    More about this item

    Keywords

    arrears; income decline; the debt service ratio; housing loans; consumer loans;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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