RWP 17-15, November 2017; Revised September 2018
Using proprietary panel data, we show that many US 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 among 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.
JEL Classification: D60, E21, E44
Article Citation
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 External Linkhttps://doi.org/10.18651/RWP2017-15
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.