Macroeconomic Dynamics

Articles

PERSONAL-BANKRUPTCY CYCLES

Thomas A. Garretta1 and Howard J. Walla2 c1

a1 University of Mississippi

a2 ISEE, Lindenwood University

Abstract

This paper estimates the dynamics of the personal-bankruptcy rate over the business cycle by exploiting large cross-state variation. We find that bankruptcy rates are significantly above trend during a recession and rise as a recession persists. After a recession ends, there is a hangover in which bankruptcy rates begin to fall but remain above trend for several more quarters. Recovery periods see a strong bounce-back effect, with bankruptcy rates significantly below trend for several quarters. Despite the significant increases in bankruptcies during recessions, the largest contributor to rising bankruptcies during these periods has tended to be the longstanding upward trend.

Keywords:

  • Personal Bankruptcy;
  • Recessions

Correspondence

c1 Address correspondence to: Howard J. Wall, ISEE, School of Business and Entrepreneurship, Lindenwood University, 209 S. Kingshighway, St. Charles, MO 63301, USA; e-mail: hwall@lindenwood.edu.

Footnotes

  We would like to thank an anonymous referee, Mike McCracken, Dan Thornton, and Yi Wen for their comments.

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