The Persistence of Financial DistressNovember 29, 2017
Using proprietary panel data, we show that many US consumers experience financial distress (35% when distress is defined by severe delinquency, e.g.) at some point in their lives. However, most distress events are concentrated in a much smaller proportion of consumers in persistent trouble. While only 10% of consumers are distressed for more than a quarter of their lives, 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 defaultable debt with informal default that accommodates a simple form of heterogeneity in time preference, but not otherwise.
Download paper, RWP 17-15, November 2017; Revised July 2018
JEL Classification: D60, E21, E44
- Arthreya, Kartik, José Mustre-del-Río, and Juan M. Sánchez. 2017. “The Persistence of Financial Distress.” Federal Reserve Bank of Kansas City, Research Working Paper no. 17-15, November. Available at https://doi.org/10.18651/RWP2017-15