Debt repayment problems: what are the implications for consumption?

Merike Kukk

No wp2016-1, Bank of Estonia Working Papers from Bank of Estonia

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

Keywords: consumption volatility; indebtedness; debt repayment problems; duration of arrears (search for similar items in EconPapers)
JEL-codes: D14 E21 E32 G21 (search for similar items in EconPapers)
Date: 2016-02-19, Revised 2016-02-19
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Citations: View citations in EconPapers (1)

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