Households borrowing during a creditless recovery

This paper investigates the contribution of households to the creditless recovery. We use Estonian cross-sectional microdata on households' assets, liabilities, income, expectations and intention to use credit in 2001-2010. The results indicate that (1) there was a large-scale drop in households demand for credit during the recession and sluggish recovery after the recession. (2) One third of the sluggish recovery in credit demand is explained by changed household endowments such as income reduction and lower income expectations, while two thirds is explained by changed behavioural relations such as renters taking mortgages less often and employed individuals using credit less often. (3) Changed behavioural relations explain a higher proportion of the credit demand drop in longer-term credit such as loans than in shorter-term credit such as credit card purchases. (4) 44% of households who wanted to use credit were credit constrained during the recovery and households with lower credit worthiness were more likely to apply for credit.