AbstractWe provide a model with endogenous portfolios of secured and unsecured household debt. Secured debt is collateralized by durables whereas unsecured debt can be discharged in bankruptcy procedures. We show that the model matches the main quantitative characteristics of observed wealth and debt portfolios in the US and some of the observed changes over time. Furthermore, we establish two quantitative results. Firstly, modest levels of risk aversion are necessary to match observed debt portfolios. Secondly, durables do not improve consumers' access to unsecured credit, and plausible variations of durable exemptions in bankruptcy procedures have very small effects on the equilibrium.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 646.
Date of creation: Jun 2009
Date of revision:
Household debt portfolios; Durables; Collateral; Income risk; Bankruptcy;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
- NEP-DGE-2009-07-11 (Dynamic General Equilibrium)
- NEP-MAC-2009-07-11 (Macroeconomics)
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