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NEW PAPER ALERTBankruptcy and the COVID-19 Crisis with Jeyul Yang + @profiverson + @ray_kluender
TLDR: Household and SME bankruptcies
since mid-March, reversing the historical relationship between bankruptcy and unemployment in the time series +cross sectionThread:
A key takeaway for me, and our contribution to the overall understanding of the COVID-19 economic crisis, is that different group of filers seem to be experiencing the crisis and relief policies very differently.
I also made this point below
https://twitter.com/jialanw/status/1289252765810614272
I also made this point below
https://twitter.com/jialanw/status/1289252765810614272
Large corps seem to be seeking + receiving relief from the system as designed, and using it to help reorganize struggling businesses. Homeowners seem to be benefiting from massive federal relief and mortgage moratoria. But renters + SMEs may be falling through the safety net.
The key question here is whether the large decline in bankruptcies we observe is the result of lower demand (i.e. less financial distress) versus liquidity + supply constraints (i.e. barriers to access).
The answer seems to depend on the type of filer. https://twitter.com/jialanw/status/1251546127297544192
The answer seems to depend on the type of filer. https://twitter.com/jialanw/status/1251546127297544192
One advantage of our paper is that unlike a lot of the other great work being put out on COVID-19, we have a consistent series of the universe of all bankruptcy filings over time with no selection bias, so we're uniquely positioned to help find the holes in the safety net.
Here's a great thread about why we need to be careful about measurement and sample selection when looking at things like UI benefits expiration: https://twitter.com/p_ganong/status/1297705510649634817
https://twitter.com/p_ganong/status/1297705510649634817
I would also point out that our findings refute the widespread media narrative that there's a "tidal wave" of consumer and small business bankruptcies. Even the astute @tracyalloway was guilty of this on a recent podcast. Please be accurate! https://twitter.com/jialanw/status/1292155192184578048
Main thread over. Easter eggs!
This paper was literally born on Twitter. Here's the moment of conception (ew): https://twitter.com/jialanw/status/1240031085649702913
This paper was literally born on Twitter. Here's the moment of conception (ew): https://twitter.com/jialanw/status/1240031085649702913
#EconTwitter is acknowledged, and thanks to everyone for engaging in useful and productive discussion over the last few months. I wish academia was always this constructive and collaborative. 
Thanks to my generous and gracious coauthors, who are giving me the chance to be the first author after a lifetime of being last. Please everyone, including reporters, cite all the authors, even on slides + news pieces. It doesn't take up that much room.
And finally, I'm sorry to the NBER for missing out on this awesome paper for their Working Paper series. Love ya, maybe next time!
Here's the paper and SSRN link!
https://www.dropbox.com/s/a0q7v7xl7fe4x3x/Wang%20Yang%20Iverson%20Kluender%202020%20-%20Bankruptcy%20and%20the%20COVID-19%20Crisis.pdf?dl=0
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3690398#
https://www.dropbox.com/s/a0q7v7xl7fe4x3x/Wang%20Yang%20Iverson%20Kluender%202020%20-%20Bankruptcy%20and%20the%20COVID-19%20Crisis.pdf?dl=0
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3690398#
Bonus discussion of bankruptcy and liquidity constraints!
As my coauthor @ray_kluender notes in his thread on our new paper, Chapter 7 bankruptcies began rebounding within days of the April 15th disbursement of $1,200 stimulus payments. https://twitter.com/ray_kluender/status/1304100957563875329
As my coauthor @ray_kluender notes in his thread on our new paper, Chapter 7 bankruptcies began rebounding within days of the April 15th disbursement of $1,200 stimulus payments. https://twitter.com/ray_kluender/status/1304100957563875329
The rebound continued until mid-July, and then all types of consumer and small business bankruptcy *declined* again following the expiration of enhanced unemployment payments on July 25th. Thus, in the time series Ch7 filings are *positively* correlated with federal aid.
This is consistent with my 2014 paper with @talgross and @ProfNoto, showing that consumer bankruptcies increased by 2-6% after federal stimulus payments in 2001 and 2008.
https://www.nber.org/papers/w17807
https://www.nber.org/papers/w17807
This evidence is consistent with the idea that filing for Chapter 7 is expensive, so households and businesses use the money from stimulus payments to access the bankruptcy system. These liquidity constraints don't bind as much for Ch13, whose fees can be paid off over time.
So paradoxically, federal aid is associated with MORE bankruptcies among some of the more vulnerable households and businesses. And that's a good thing if they need debt relief!
Heavy caveat: these are just time series correlations. Am I a real macro-economist now?
Heavy caveat: these are just time series correlations. Am I a real macro-economist now?
