EconPapers    
Economics at your fingertips  
 

Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession

Adrien Auclert (), Paul Goldsmith-Pinkham and Will Dobbie
Additional contact information
Will Dobbie: Princeton University

No 355, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: This paper argues that the debt forgiveness provided by the U.S. consumer bankruptcy system helped stabilize the level of employment during the Great Recession. We begin by documenting that states with more and less generous bankruptcy exemptions had statistically identical employment outcomes during the 2001-2007 period. Starting in 2008, however, states with more generous bankruptcy exemptions had significantly smaller declines in local non-tradable employment and larger increases in unsecured debt write-downs compared to states with less generous exemptions. We interpret these responses as the causal effect of the debt relief provided by the consumer bankruptcy system on employment across states, and develop a general equilibrium model to recover the aggregate effect of this debt relief. The model yields three key results. First, substantial nominal rigidities are required to rationalize our reduced form cross-state estimates. Second, with monetary policy at the zero lower bound, traded good demand spillovers from more generous to less generous states boosted employment everywhere. Finally, the ex-post debt forgiveness provided by the consumer bankruptcy system during the Great Recession increased aggregate employment by almost two percent.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2019/paper_355.pdf (application/pdf)

Related works:
Working Paper: Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession (2019) Downloads
Working Paper: Macroeconomic Effects of Debt Relief: Consumer Bankruptcy Protections in the Great Recession (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:355

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-11-27
Handle: RePEc:red:sed019:355