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Household Finance after a Natural Disaster: The Case of Hurricane Katrina

Little is known about how affected residents are able to cope with the financial shock of a natural disaster. We investigate the impact that flooding from a major US hurricane had on household finance. Spikes in credit card borrowing and overall delinquency rates for the most flooded residents are modest in size and short-lived. Greater flooding results in larger reductions in total debt. Lower debt levels appear to be driven by homeowners using flood insurance to repay their mortgages rather than to rebuild. Debt reductions are larger in census tracts where mortgages were likely to be originated by nonlocal lenders.

Keywords: Household Finance, Insurance, Natural Disaster.

JEL Classification: D14, G21, H84, Q54.

Suggested citation: Gallagher, Justin, and Daniel Hartley, 2014. “Household Finance after a Natural Disaster: The Case of Hurricane Katrina,” Federal Reserve Bank of Cleveland, Working Paper no. 14-06.

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