The Effects of Macroeconomic Shocks: Household Financial Distress Matters

José Mustre-del-Río, Juan M Sánchez, Ryan Mather and Kartik Athreya

The Review of Financial Studies, 2025, vol. 38, issue 2, 564-604

Abstract: When a macroeconomic shock arrives, variation in household balance sheet health (captured by the presence of financial distress, or “FD”) leads to differential access to credit and hence a distribution in consumption responses. As we document, though, over the past two recessions, households in prior FD also experienced macroeconomic shocks more intensely than others, leading to a distribution of shock severity. Quantifying the importance of each dimension of heterogeneity (FD or shock severity) for consumption requires a structural model. We find that heterogeneity in FD matters more for shaping the responses of individual and aggregate consumption to shocks.

Keywords: D31; E21; E44; G11; G12; G21 (search for similar items in EconPapers)
Date: 2025
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