Do liquidity constraints generate excess sensitivity in consumption? New evidence from a sample of post-bankruptcy households

Filer, Larry; Fisher, Jonathan

doi:10.1016/j.jmacro.2005.11.005

Cited by 25 publications

(25 citation statements)

References 24 publications

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“…In a similar spirit, Filer and Fisher (2007) find that the consumption of households that recently filed for bankruptcy—another factor in granting access to credit—is sensitive to predictable income changes, consistent with the presence of borrowing constraints. One advantage of the DSR over a bankruptcy flag is that the bankruptcy flag identifies only the most severely borrowing‐constrained households and does not permit accurate estimation of the size of the borrowing‐constrained population.…”

mentioning

confidence: 64%

The Debt‐Payment‐to‐Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys

Johnson¹,

Li²

2010

J of Money Credit Banking

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Liquidity constraints have been proposed as an important explanation for deviations from the rational expectations/permanent income hypothesis. This paper introduces to the liquidity constraint literature the ratio of a household's debt payments to its disposable personal income, the debt service ratio (DSR). We find that a household with a high DSR is significantly more likely to be turned down for credit than other households. Also, the consumption growth of likely constrained households, identified using the DSR along with the liquid-asset-to-income ratio, is significantly more sensitive to past income than that of other households, confirming the DSR's value in identifying constrained households. Copyright (c) 2010 The Ohio State University.

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confidence: 64%

The Debt‐Payment‐to‐Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys

Johnson¹,

Li²

2010

J of Money Credit Banking

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“…Finally, this paper contributes to the literature addressing the effect of bankruptcy filings on consumer and creditor behaviors. Existing empirical studies have looked into the effects of bankruptcy on consumption smoothing (Filer and Fisher 2005, 2007), labor supply (Han and Li 2007), wealth accumulation (Repetto 1998), and homeownership (Li and Carroll 2008, Eraslan, Li, and Sarte 2007, White and Zhu 2008). Our study augments this literature with a comprehensive analysis on postbankruptcy credit access.…”

Section: Background: Legislation Theory and Literaturementioning

confidence: 99%

Household Borrowing after Personal Bankruptcy

Han¹,

Li²

2011

J of Money Credit Banking

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A large body of literature has examined factors leading to filing for personal bankruptcy, but little is known about household borrowing after bankruptcy. This paper augments the existing literature with a comprehensive analysis of postbankruptcy borrowing using data from the Survey of Consumer Finances. We find that filers generally have more limited access to unsecured credit, but borrow more secured debt after bankruptcy, than comparable households that have never filed for bankruptcy. Filers also pay higher interest rates on all types of debt. In addition, as more time passes after filing, credit access and borrowing costs improve. However, filers remain more prone than comparable nonfilers to experience financial distress, accumulate less wealth, and use expensive credit sources like payday loans, even more than 10 years after filing.JEL codes: J22, K35

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“…She found that an increased risk of bankruptcy significantly increased the interest rate paid on mortgages and automobile loans. In another study, Filer and Fisher (2007) exploited a prediction of the Life-Cycle/ Permanent Income Hypothesis (LC-PIH) to test whether households with a bankruptcy flag on their credit report were borrowing constrained. Recall the LC-PIH predicts that if households are not borrowing constrained, then consumption growth will not be correlated with predictable changes in income.…”

Section: Introductionmentioning

confidence: 99%

“…Recall the LC-PIH predicts that if households are not borrowing constrained, then consumption growth will not be correlated with predictable changes in income. Using the Panel Study of Income Dynamics (PSID), Filer and Fisher (2007) found that consumption growth for households with a bankruptcy flag was correlated with predictable changes in income, suggesting that these households were in fact borrowing constrained.…”

Section: Introductionmentioning

confidence: 99%

Information and credit access: using bankruptcy as a signal

Fisher¹,

Lyons

2010

Applied Economics

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Legally, a bankruptcy flag can appear on an individual's credit report for up to 10 years after the filing. The flag affects an individual's credit score, and in turn, an individual's access to credit. In this article, we investigate how the bankruptcy flag affects access to credit along three dimensions-loan acceptance, the price of the loan as is determined by the interest rate, and the amount of credit the household receives. Using the Panel Study of Income Dynamics and the Survey of Consumer Finances, we estimate a series of two-stage models corrected for sample selection and adjusted to account for the household's level of creditworthiness. We find that the bankruptcy flag increases the probability of being denied access to a loan. The flag also increases interest rates for unsecured loans and lowers the credit limits available to households. The findings have important implications with respect to current bankruptcy code and the impact that information, such as the bankruptcy flag, can have on the efficiency of the credit markets.

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Do liquidity constraints generate excess sensitivity in consumption? New evidence from a sample of post-bankruptcy households

Cited by 25 publications

References 24 publications

The Debt‐Payment‐to‐Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys

The Debt‐Payment‐to‐Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys

Household Borrowing after Personal Bankruptcy

Information and credit access: using bankruptcy as a signal

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