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The Persistence of Financial Distress

Author

Listed:
  • Kartik Athreya

    (Federal Reserve Bank of Richmond)

  • Jose Mustre-del-Rio

    (Federal Reserve Bank of Kansas City)

  • Juan Sanchez

    (Federal Reserve Bank of St. Louis)

Abstract

Using recently available proprietary panel data, we show that while many (35%) US consumers experience financial distress at some point in the life cycle, most of the events of financial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble. Roughly 10% of consumers are distressed for more than a quarter of the life cycle, and less than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of heterogeneity in time preference but not otherwise.

Suggested Citation

  • Kartik Athreya & Jose Mustre-del-Rio & Juan Sanchez, 2018. "The Persistence of Financial Distress," 2018 Meeting Papers 308, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:308
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    References listed on IDEAS

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    Cited by:

    1. Kartik B. Athreya & Ryan Mather & Jose Mustre-del-Rio & Juan M. Sanchez, 2019. "Consumption in the Great Recession: The Financial Distress Channel," Research Working Paper RWP 19-6, Federal Reserve Bank of Kansas City, revised 11 Sep 2019.
    2. Kartik B. Athreya & Ryan Mather & Jose Mustre-del-Rio & Juan M. Sanchez, 2019. "Household Financial Distress and the Burden of “Aggregate” Shocks," Working Papers 2019-025, Federal Reserve Bank of St. Louis, revised 10 Sep 2020.
    3. Kyle F. Herkenhoff & Gajendran Raveendranathan, 2019. "Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry," Working Papers 2019-071, Human Capital and Economic Opportunity Working Group.
    4. Kyle Dempsey & Felicia Ionescu, 2019. "Lending Standards and Consumption Insurance over the Business Cycle," 2019 Meeting Papers 1428, Society for Economic Dynamics.
    5. Olga Gorbachev & María José Luengo-Prado, 2019. "The Credit Card Debt Puzzle: The Role of Preferences, Credit Access Risk, and Financial Literacy," The Review of Economics and Statistics, MIT Press, vol. 101(2), pages 294-309, May.

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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