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Bankruptcy and delinquency in a model of unsecured debt

  • Athreya, Kartik


    (Federal Reserve Bank of Richmond)

  • Sánchez, Juan M.


    (Federal Reserve Bank of St. Louis)

  • Tam, Xuan S.


    (City University of Hong Kong)

  • Young, Eric R.


    (University of Virginia)

At an aggregate level, formal default via bankruptcy and informal default via delinquency are both quantitatively important in consumer credit markets. In this paper, we use a variety of microeconomic data sources to construct a salient set of facts on the use of unsecured debt and both formal and informal default. We then show that these facts, which describe both the cross-sectional and dynamic behavior of borrowing and default, can be well understood through a quantitative model of consumer credit with empirically plausible representations of labor market risks, social safety nets, and debt-default options.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-042.

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Length: 74 pages
Date of creation: 2012
Date of revision: 30 Jan 2014
Handle: RePEc:fip:fedlwp:2012-042
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  1. DAVILA, Julio & HONG, Jay H. & KRUSELL, Per & RIOS-RULL, José-Victor, . "Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks," CORE Discussion Papers RP 2463, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Ulf von Lilienfeld-Toal & Dilip Mookherjee, 2010. "The Political Economy of Debt Bondage," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 44-84, August.
  3. Satyajit Chatterjee & Burcu Eyigungor, 2009. "Maturity, indebtedness, and default risk," Working Papers 09-2, Federal Reserve Bank of Philadelphia.
  4. Hatchondo, Juan Carlos & Martinez, Leonardo & Sánchez, Juan M., 2011. "Mortgage defaults," Working Papers 2011-019, Federal Reserve Bank of St. Louis, revised 31 Jul 2015.
    • Juan Carlos Hatchondo & Leonardo Martinez & Juan M. Sanchez, 2015. "Mortgage Defaults," Caepr Working Papers 2015-011 Classification-D, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    • Leonardo Martinez & Juan Carlos Hatchondo & Juan M. Sanchez, 2012. "Mortgage Defaults," IMF Working Papers 12/26, International Monetary Fund.
    • Juan Carlos Hatchondo & Leonardo Martinez & Juan M. Sanchez, 2011. "Mortgage defaults," Working Paper 11-05, Federal Reserve Bank of Richmond.
  5. Juan Carlos Hatchondo & Leonardo Martinez, 2009. "Long-duration bonds and sovereign defaults," Working Paper 08-02, Federal Reserve Bank of Richmond.
  6. 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.
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