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I (don’t) owe you: sovereign default and borrowing behavior

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  • Georgarakos, Dimitris
  • Popov, Alexander

Abstract

Using microdata from a U.S. household survey, we document that immigrants who lived through a sovereign default episode are 6% less likely to hold debt relative to otherwise similar immigrants who reside in the same U.S. state and come from the same foreign country but who did not experience a default. Conditional on holding debt, consumers in the former group borrow less and service lower debt burdens. The negative effect on borrowing behavior of having experienced a sovereign default increases with family size and declines with education. These findings highlight the role of personal experience in shaping households’ financial decisions. JEL Classification: G11, G51, H63, D83

Suggested Citation

  • Georgarakos, Dimitris & Popov, Alexander, 2024. "I (don’t) owe you: sovereign default and borrowing behavior," Working Paper Series 2893, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242893
    Note: 483508
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    More about this item

    Keywords

    experiences; household borrowing; immigrant; sovereign default;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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