Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/242407 
Year of Publication: 
2021
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2021: Climate Economics
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
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.
Subjects: 
Financial Shocks
Aggregate Consumption Dynamics
Chapter 7
BAPCPA,Bank-Intermediated Credit
Transitional Dynamics
JEL: 
E2
E5
G1
Document Type: 
Conference Paper

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