The Persistence of Financial Distress

40 Pages Posted: 26 Nov 2017 Last revised: 29 Apr 2020

See all articles by Kartik Athreya

Kartik Athreya

Federal Reserve Banks - Federal Reserve Bank of Richmond

Jose Mustre-del-Rio

Federal Reserve Bank of Kansas City

Juan M. Sánchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Multiple version iconThere are 3 versions of this paper

Date Written: 2017-11-09

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.

Keywords: default, financial distress, consumer credit, credit card debt

JEL Classification: D60, E21, E44

Suggested Citation

Athreya, Kartik and Mustre-del-Rio, Jose and Sanchez, Juan M., The Persistence of Financial Distress (2017-11-09). FRB Richmond Working Paper No. 17-14, Available at SSRN: https://ssrn.com/abstract=3076395

Kartik Athreya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Jose Mustre-del-Rio

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

Juan M. Sanchez

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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