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Unsecured credit markets are not insurance markets

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  • Athreya, Kartik
  • Tam, Xuan S.
  • Young, Eric R.

Abstract

We study the extent to which unsecured credit markets have altered the transmission of increased income risk to consumption variability over the past several decades. We find that unsecured credit markets pass through increased income risk to consumption, irrespective of bankruptcy policy and the information possessed by lenders. If risk sharing has indeed improved over this period, the reasons do not therefore lie in the unsecured credit market.

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  • Athreya, Kartik & Tam, Xuan S. & Young, Eric R., 2009. "Unsecured credit markets are not insurance markets," Journal of Monetary Economics, Elsevier, vol. 56(1), pages 83-103, January.
  • Handle: RePEc:eee:moneco:v:56:y:2009:i:1:p:83-103
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    Cited by:

    1. Luo, Yulei & Nie, Jun & Wang, Gaowang & Young, Eric, 2014. "What We Don't Know Doesn't Hurt Us: Rational Inattention and the Permanent Income Hypothesis in General Equilibrium," MPRA Paper 59182, University Library of Munich, Germany.
    2. Annamaria Lusardi & Daniel Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 83-150.
    3. Gordon, Grey, 2017. "Optimal bankruptcy code: A fresh start for some," Journal of Economic Dynamics and Control, Elsevier, vol. 85(C), pages 123-149.
    4. Felicia Ionescu, 2011. "The Interplay Between Different Types of Unsecured Credit and Amplification of Consumer Default," 2011 Meeting Papers 912, Society for Economic Dynamics.
    5. Felicia Ionescu, 2011. "Risky Human Capital and Alternative Bankruptcy Regimes for Student Loans," Journal of Human Capital, University of Chicago Press, vol. 5(2), pages 153-206.
    6. Kartik Arthreya & Juan Sanchez & Xuan Tam & Eric Young, 2015. "Labor Market Upheaval, Default Regulation, and Consumer Debt," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(1), pages 32-52, January.
    7. Song Han & Benjamin J. Keys & Geng Li, 2011. "Credit supply to personal bankruptcy filers: evidence from credit card mailings," Finance and Economics Discussion Series 2011-29, Board of Governors of the Federal Reserve System (U.S.).
    8. Felicia Ionescu & Marius Ionescu, 2012. "The Interplay Between Student Loans and Credit Cards: Implications for Default," Working Papers 2012-014, Human Capital and Economic Opportunity Working Group.
    9. Gordon Phillips & Kyle Herkenhoff, 2015. "The Impact of Consumer Credit Constraints on Earnings, Sorting, and Job Finding Rates of Displaced Workers," 2015 Meeting Papers 375, Society for Economic Dynamics.
    10. Kartik Athreya & Xuan S. Tam & Eric R. Young, 2012. "A Quantitative Theory of Information and Unsecured Credit," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 153-183, July.
    11. Igor Livshits, 2015. "Recent Developments In Consumer Credit And Default Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 594-613, September.
    12. Xavier Mateos-Planas & Giulio Seccia, 2013. "Consumer Default with Complete Markets: Default-based Pricing and Finite Punishment," Working Papers 711, Queen Mary University of London, School of Economics and Finance.
    13. Sudipto Bhattacharya & Charles A.E. Goodhart & Dimitrios P. Tsomocos & Alexandros P. Vardoulakis, 2015. "A Reconsideration of Minsky's Financial Instability Hypothesis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(5), pages 931-973, August.
    14. repec:eee:jetheo:v:172:y:2017:i:c:p:55-87 is not listed on IDEAS
    15. Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2009. "Are harsh penalties for default really better?," Working Paper 09-11, Federal Reserve Bank of Richmond.
    16. Luzzetti, Matthew N. & Neumuller, Seth, 2016. "Learning and the dynamics of consumer unsecured debt and bankruptcies," Journal of Economic Dynamics and Control, Elsevier, vol. 67(C), pages 22-39.
    17. Kuklik, Michal, 2010. "Health insurance reform and bankruptcy," MPRA Paper 39196, University Library of Munich, Germany, revised 2011.
    18. Robert McKeown, 2017. "How vulnerable is the Canadian banking system to fire-sales?," Working Papers 1381, Queen's University, Department of Economics.
    19. Mateos-Planas, Xavier, 2013. "Credit limits and bankruptcy," Economics Letters, Elsevier, vol. 121(3), pages 469-472.
    20. Ionescu, Felicia & Ionescu, Marius, 2014. "The Interplay Between Student Loans and Credit Card Debt: Implications for Default in the Great Recession," Finance and Economics Discussion Series 2014-14, Board of Governors of the Federal Reserve System (U.S.).
    21. Luo, Yulei & Nie, Jun & Wang, Gaowang & Young, Eric R., 2017. "Rational inattention and the dynamics of consumption and wealth in general equilibrium," Journal of Economic Theory, Elsevier, vol. 172(C), pages 55-87.
    22. Xavier Mateos-Planas & Giulio Seccia, 2014. "Consumer default with complete markets: default-based pricing and finite punishment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 549-583, August.
    23. Xavier Mateos-Planas & David Benjamin, 2012. "Formal vs. Informal Default in Consumer Credit," 2012 Meeting Papers 144, Society for Economic Dynamics.
    24. Youngsoo Jang, 2016. "Income Inequality, Medical Conditions, and Household Bankruptcy," Proceedings of Economics and Finance Conferences 4206835, International Institute of Social and Economic Sciences.
    25. Ionescu, Felicia, 2009. "Risky College Investment under Alternative Bankruptcy Regimes for Student Loans," Working Papers 2009-01, Department of Economics, Colgate University.

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