Heavy Lifting - thoughts and web finds by an economist
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Tuesday, November 20, 2007
While surfing around I came across the American Bankruptcy Institute, which reports quarterly data on various types of bankruptcy filings. I grabbed the data on business filings for giggles.
Here's a time-plot:
The big spike at the end of 2005 represents a surge before the law was changed in 2006 making it harder to file bankruptcy and receive protection from creditors. Here's a somewhat naive regression model relating filings to the previosu quarter's filings, the previous quarter's real gdp growth, the quarter's unemployment, a time trend, and a dummy variable that takes a value of one for the period after the new bankruptcy laws went into effect. I also included two leads of the dummy variable in order to see if people changed behavior in the lead-up to the law changing:
The previous quarter's filings are positively related to the current quarter's filings. Lagged growth is not related to filings, but lagged unemployment is. If the lagged unemployment is a measure of macroeconomic health (or lack thereof), then the positive parameter estimate makes sense.
The years after the new bankruptcy laws were in force, business bankruptcies fell dramatically. However, the two quarters before the changes went into effect experienced a dramatic increase in the number of filings. People may have realized that their abllity to file for bankruptcy was going to change and took advantage of a window of opportunity?
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