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The Impact of a Man-made Disaster on Consumer Credit Outcomes: Evidence from the 2018 Merrimack Valley Natural Gas Explosions

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  • Bo Zhao

Abstract

This paper is the first to empirically examine the impact of a man-made disaster on consumer credit outcomes. It uses the 2018 Merrimack Valley natural gas explosions as a quasi-random natural experiment and shows that the explosions had a temporary negative effect on debt balances, credit limits, and the number of delinquencies, and did not affect credit scores. The decreases in debt balances and credit limits were likely driven by a decline in credit demand when the affected individuals faced severe life disruption, great uncertainty, and negative financial shocks associated with the disaster. It took some time for the explosions to have an impact on delinquencies, suggesting that the affected individuals may have received short-term forbearance or used default as a last resort. The lack of large, long-lasting effects of the explosions likely reflects the critical role that external assistance to the affected communities played in mitigating the disaster’s impact.

Suggested Citation

  • Bo Zhao, 2023. "The Impact of a Man-made Disaster on Consumer Credit Outcomes: Evidence from the 2018 Merrimack Valley Natural Gas Explosions," Working Papers 23-17, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:97402
    DOI: 10.29412/res.wp.2023.17
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    References listed on IDEAS

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    1. Billings, Stephen B. & Gallagher, Emily A. & Ricketts, Lowell, 2022. "Let the rich be flooded: The distribution of financial aid and distress after hurricane harvey," Journal of Financial Economics, Elsevier, vol. 146(2), pages 797-819.
    2. Justin Gallagher & Daniel Hartley, 2017. "Household Finance after a Natural Disaster: The Case of Hurricane Katrina," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 199-228, August.
    3. Sergio Correia & Paulo Guimarães & Tom Zylkin, 2020. "Fast Poisson estimation with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 20(1), pages 95-115, March.
    4. Justin Gallagher & Daniel Hartley & Shawn Rohlin, 2023. "Weathering an Unexpected Financial Shock: The Role of Federal Disaster Assistance on Household Finance and Business Survival," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(2), pages 525-567.
    5. Donghoon Lee & Wilbert Van der Klaauw, 2010. "An introduction to the FRBNY Consumer Credit Panel," Staff Reports 479, Federal Reserve Bank of New York.
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    More about this item

    Keywords

    man-made disasters; household credit; consumer debt;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • Q59 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Other

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