Advanced Search
MyIDEAS: Login

Consumption and Debt Dynamics with (Rarely Binding) Borrowing Constraints

Contents:

Author Info

  • Alexis Anagnostopoulos

Abstract

This paper examines consumption and savings dynamics in a standard model of incomplete markets. Existence of equilibrium requires the imposition of exogenous debt limits but these are often ignored because of the computational difficulties that arise in models with occasionally binding constraints. I claim that borrowing constraints have a significant qualitative and quantitative effect on equilibrium allocations even if they rarely bind. Contrary to standard results in the literature, debt exhibits mean reversion, consumption responds strongly to idiosyncratic income shocks and interest rates respond to both aggregate and idiosyncratic innovations in income. The implication is that market incompleteness can generate much lower consumption correlations than was previously thought.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.iue.it/PUB/ECO2004-34.pdf
File Function: main text
Download Restriction: no

Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2004/34.

as in new window
Length:
Date of creation: 2004
Date of revision:
Handle: RePEc:eui:euiwps:eco2004/34

Contact details of provider:
Postal: Badia Fiesolana, Via dei Roccettini, 9, 50016 San Domenico di Fiesole (FI) Italy
Phone: +39-055-4685.982
Fax: +39-055-4685.902
Web page: http://www.eui.eu/ECO/
More information through EDIRC

Related research

Keywords: Incomplete markets; consumption/savings dynamics; non-linear dynamic methods;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eui:euiwps:eco2004/34. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcia Gastaldo).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.