Personal-Bankruptcy Cycles

Federal Reserve Bank of St. Louis Working Paper No. 2010-010A

36 Pages Posted: 25 Mar 2010

See all articles by Thomas A. Garrett

Thomas A. Garrett

Federal Reserve Bank of St. Louis - Research Division

Howard J. Wall

Lindenwood University - Center for Economics and the Environment

Date Written: March 18, 2010

Abstract

This paper estimates the dynamics of the personal-bankruptcy rate over the business cycle by exploiting large cross-state variation in recessions and bankruptcies. We find that bankruptcy rates are significantly higher than normal during a recession and rise as a recession persists. After a recession ends, there is a hangover whereby bankruptcy rates begin to fall but remain above normal for several more quarters. Recovery periods see a strong bounce-back effect with bankruptcy rates significantly below normal for several quarters. Despite the significant increases in bankruptcies that occur during recessions, the largest contributor to rising bankruptcies during these periods has tended to be the longstanding upward trend.

Keywords: Personal Bankruptcy, Recessions

JEL Classification: K35, D14, E32

Suggested Citation

Garrett, Thomas A. and Wall, Howard J., Personal-Bankruptcy Cycles (March 18, 2010). Federal Reserve Bank of St. Louis Working Paper No. 2010-010A, Available at SSRN: https://ssrn.com/abstract=1574327 or http://dx.doi.org/10.2139/ssrn.1574327

Thomas A. Garrett (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Howard J. Wall

Lindenwood University - Center for Economics and the Environment ( email )

209 S. Kingshighway
St. Charles, MO 63301
United States

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