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Debt repayment problems: what are the implications for consumption?

Author

Listed:
  • Merike Kukk

Abstract

The paper investigates the impact of debt repayment problems on consumption using quarterly panel data from 2004–2011 from Estonia, a euro area country. The results imply that arrears on debt lead to substantial short-term changes in consumption. Quarterly consumption is on average 30 per cent lower in the quarter when an individual faces debt repayment problems. The longer the problems last, the more severe the decline in consumption is. Although consumption recovers after the debt repayment problems are resolved, the increase is smaller than the original decline and consumption remains at a lower level than before the arrears emerged. The results suggest that the experience of debt repayment problems has severe consequences for consumption in the short term as well as in the longer term

Suggested Citation

  • Merike Kukk, 2016. "Debt repayment problems: what are the implications for consumption?," Bank of Estonia Working Papers wp2016-1, Bank of Estonia, revised 19 Feb 2016.
    • Handle: RePEc:eea:boewps:wp2016-1
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//file:///C:/Users/kasutaja/Downloads/wp01_2016%20(1).pdf
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    Cited by:

    1. Jacob, Punnoose & Uusküla, Lenno, 2019. "Deep habits and exchange rate pass-through," Journal of Economic Dynamics and Control, Elsevier, vol. 105(C), pages 67-89.

    More about this item

    Keywords

    consumption volatility; indebtedness; debt repayment problems; duration of arrears;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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