Household Borrowing During a Creditless Recovery

Abstract

We investigate the factors behind the borrowing of households during a creditless recovery. We use data from a typical creditless recovery case—Estonia during the aftermath of the global financial crisis. Cross-sectional data on households’ assets, liabilities, income, expectations, and intention to use credit in 2001–10 and 2012 are employed. The results indicate that two-thirds of the sluggish recovery in credit demand can be explained by changes in household endowments such as income reduction and lower income expectations, while one-third remains unexplained and is ascribed to changes in behavioral relations. It is noted that the share of credit-constrained households was very high during the creditless recovery period.