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Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey

Published online by Cambridge University Press:  09 January 2024

Alejandro del Valle Open the ORCID record for Alejandro del Valle [Opens in a new window] ,
Therese Scharlemann  and
Stephen Shore Open the ORCID record for Stephen Shore [Opens in a new window]
Alejandro del Valle*
Affiliation:
Georgia State University Greenberg School of Risk Science
Therese Scharlemann
Affiliation:
Federal Reserve Board Tess.Scharlemann@frb.gov
Stephen Shore
Affiliation:
Georgia State University Greenberg School of Risk Science sshore@gsu.edu
*
adelvalle@gsu.edu (corresponding author)
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Abstract

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We study household credit responses to Hurricane Harvey using new, geographically granular data on credit cards, mortgages, and flooding. Estimates from a differences-in-differences design that exploits the flooding gradient show that affected households only borrow at low-interest rates, often using promotional (zero interest) cards and that they quickly pay down balances. We also document that take-up of forbearance (borrowing by missing mortgage payments without penalty) increases with flooding. These results are attenuated in floodplains, particularly in structures subject by code to physical hardening. Our results indicate that credit acts as a substitute for the lack of physical hardening.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 27
Creative Commons
Creative Common License - CCCreative Common License - BY
To the extent this is a work of the US Government, it is not subject to copyright protection within the United States. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington.
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© Board of Governors of the Federal Reserve System and the Author(s), 2024.

Footnotes

We thank an anonymous referee, Jennifer Conrad (the editor), Emily Gallagher, Justin Gallagher, Raven Molloy, Paul Willen, and participants at the 2019 Urban Economic Association Meetings, the 2019 Office of Financial Research/Cleveland Federal Reserve Bank Conference on Financial Stability, and the 2021 NBER Conference on Innovative Data in Household Finance for helpful comments. The views and opinions expressed in this article are solely those of the authors and do not reflect those of the Board of Governors or the Federal Reserve System.

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