Household debt repayment behaviour: what role do institutions play?

Despite the lively policy debate on rising household debt, arrears and personal bankruptcy filings, there is relatively little empirical evidence on the determinants of households' debt repayment behaviour, or on the incidence of arrears. Even less is known about how arrears compare between countries, although debt levels are known to vary widely. Using data from the European Community Household Panel, we first show that arrears are frequently associated with subsequent adverse consequences, such as future unemployment or bad health. Second, we find that arrears are often precipitated by an adverse shock to the household's income or health, but that there are large differences between countries in how households react to these events. Finally, we show that these differences can be partly explained by local financial and judicial institutions, as captured by contract enforcement and information sharing indicators. In other words, we show that while adverse shocks are highly important, the extent to which they affect repayment behaviour depends crucially on the penalty for defaulting. This finding suggests that although repayment problems often arise from a genuine inability to repay, some households seem to behave strategically.

Regional inflation dynamics within and across euro area countries and a comparison with the United States

Inflation differentials across regions of an integrated economy can reflect a proper response to demand and supply conditions, but can also indicate distortions with negative welfare implications. Using a novel dataset of regional inflation rates from six euro area countries, we examine the size and persistence of their differentials and find that they appear to be related to factor market distortions and other structural characteristics, rather than to cyclical and growth dynamics. Our empirical analysis shows that only about half of inflation rates variation is accounted for by area-wide factors such as monetary policy or oil price developments. National factors (such as labour market institutions) still play a very important role, and a regional component accounts for about 18% of inflation variability.