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The Persistence of Financial Distress

Kartik Athreya1; José Mustre-del-Río2; Juan M. Sánchez3

1 Federal Reserve Bank of Richmond · 2 Federal Reserve Bank of Kansas City · 3 Federal Reserve Bank of St. Louis

Review of Financial Studies 2019 open access

Abstract Using proprietary panel data, we show that many U.S. consumers experience financial distress (35% when distress is defined by having debt in severe delinquency, e.g.) at some point in their lives. However, most distress events are concentrated on a much smaller proportion of consumers in persistent trouble: fewer 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 unsecured debt with informal default that accommodates a simple form of heterogeneity in time preference. Received November 10, 2017; editorial decision November 12, 2018 by Editor Stijn Van Nieuwerburgh.

DOI
10.1093/rfs/hhz009
Volume
32 (10)
Pages
3851-3883
Language
en
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