Tighter Credit and Consumer Bankruptcy Insurance

Antonio Antunes; Tiago Cavalcanti; Caterina Mendicino; Marcel Peruffo; Anne Villamil

doi:10.2139/ssrn.3794357

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Tighter Credit and Consumer Bankruptcy Insurance

Working paper

Open access

Tighter Credit and Consumer Bankruptcy Insurance

Antonio Antunes, Tiago Cavalcanti, Caterina Mendicino, Marcel Peruffo and Anne Villamil

SSRN

03/22/2021

DOI: 10.2139/ssrn.3794357

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Abstract

How does bankruptcy affect the dynamics of aggregate consumption? We quantify the trade-off between the insurance and creditworthiness effects of bankruptcy in response to tighter credit. We show that bankruptcy dampens the effect of tighter credit on aggregate consumption on impact because it allows borrowers to sustain consumption, but statutory exclusion from the credit market reduces consumption smoothing over time and slows the recovery. Default costs play a crucial role in bankruptcy decisions and also shape consumption dynamics. We find that the 2005 BAPCPA reform, by making bankruptcy more costly, worsened the negative welfare effects of the subsequent credit tightening.

Aggregate Consumption Dynamics

Chapter 7

Financial Shocks

Transitional Dynamics

BAPCPA,Bank-Intermediated Credit

Details

Title: Subtitle: Tighter Credit and Consumer Bankruptcy Insurance
Creators: Antonio Antunes
Tiago Cavalcanti
Caterina Mendicino
Marcel Peruffo
Anne Villamil
Resource Type: Working paper
DOI: 10.2139/ssrn.3794357
Publisher: SSRN
Number of pages: 50 pages
Language: English
Date posted: 03/22/2021
Academic Unit: Economics
Record Identifier: 9984530361802771

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