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Debt Portfolios

  • Hintermaier, Thomas

    ()

    (University of Bonn)

  • Koeniger, Winfried

    ()

    (University of St. Gallen)

We provide a model with endogenous portfolios of secured and unsecured household debt. Secured debt is collateralized by owner-occupied housing whereas unsecured debt can be discharged according to bankruptcy regulations. We show that the calibrated model matches important quantitative characteristics of observed wealth and debt portfolios for prime-age consumers in the U.S. We then establish the quantitative result that home equity does not serve as informal collateral for unsecured debt since, as in the data, unsecured debtors hold small amounts of home equity in equilibrium. Thus, observed variations in homestead exemptions, which are an important part of U.S. bankruptcy regulation, have a small effect on the quantity and price of unsecured debt.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5653.

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Length: 53 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5653
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  1. Caporale, Tony & Grier, Kevin B, 2000. "Political Regime Change and the Real Interest Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 320-34, August.
  2. Hintermaier, Thomas & Koeniger, Winfried, 2010. "The method of endogenous gridpoints with occasionally binding constraints among endogenous variables," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2074-2088, October.
  3. Karen A. Kopecky & Richard M. H. Suen, 2009. "Finite State Markov-Chain Approximations to Highly Persistent Processes," Working Papers 200904, University of California at Riverside, Department of Economics, revised May 2009.
  4. Kiyotaki, Nobuhiro & Michaelides, Alexander & Nikolov, Kalin, 2010. "Winners and Losers in Housing Markets," CEPR Discussion Papers 7953, C.E.P.R. Discussion Papers.
  5. Igor Livshits & James MacGee & Michèle Tertilt, 2010. "Accounting for the Rise in Consumer Bankruptcies," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 165-93, April.
  6. Igor Livshits & James MacGee & Michele Tertilt, 2003. "Consumer bankruptcy: a fresh start," Working Papers 617, Federal Reserve Bank of Minneapolis.
  7. Pavan, Marina, 2008. "Consumer durables and risky borrowing: The effects of bankruptcy protection," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1441-1456, November.
  8. Merxe Tudela & Garry Young, 2005. "The determinants of household debt and balance sheets in the United Kingdom," Bank of England working papers 266, Bank of England.
  9. Charles Grant & Winfried Koeniger, 2009. "Redistributive Taxation and Personal Bankruptcy in U.S. States," Journal of Law and Economics, University of Chicago Press, vol. 52(3), pages 445-467, 08.
  10. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  11. Morris A. Davis & François Ortalo-Magné, 2007. "Household Expenditures, Wages, Rents," CESifo Working Paper Series 2156, CESifo Group Munich.
  12. Hintermaier, Thomas & Koeniger, Winfried, 2010. "On the Evolution of the US Consumer Wealth Distribution," CEPR Discussion Papers 7850, C.E.P.R. Discussion Papers.
  13. Steven J. Davis & Felix Kubler & Paul Willen, 2005. "Borrowing costs and the demand for equity over the life cycle," Working Papers 05-7, Federal Reserve Bank of Boston.
  14. Kartik Athreya, 2008. "A Quantitative Theory of Information and Unsecured Credit," 2008 Meeting Papers 68, Society for Economic Dynamics.
  15. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers 2010-5, Central Bank of Cyprus.
  16. Andrew G. Biggs, 2011. "Social Security," Books, American Enterprise Institute, number 6033, 2.
  17. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
  18. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
  19. Mateos-Planas, Xavier, 2009. "A model of credit limits and bankruptcy with applications to welfare and indebtedness," Discussion Paper Series In Economics And Econometrics 0910, Economics Division, School of Social Sciences, University of Southampton.
  20. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
  21. Mankart, Jochen & Rodano, Giacomo, 2012. "Bankruptcy Law, Debt Portfolios, and Entrepreneurship," Economics Working Paper Series 1216, University of St. Gallen, School of Economics and Political Science.
  22. Heaton, John & Lucas, Deborah, 1997. "Market Frictions, Savings Behavior, And Portfolio Choice," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 76-101, January.
  23. Athreya, Kartik, 2006. "Fresh start or head start? Uniform bankruptcy exemptions and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 2051-2079, November.
  24. repec:aei:rpbook:24949 is not listed on IDEAS
  25. Kartik Athreya, 2004. "Shame as it ever was : stigma and personal bankruptcy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-19.
  26. Athreya, Kartik B., 2002. "Welfare implications of the Bankruptcy Reform Act of 1999," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1567-1595, November.
  27. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
  28. Fang Yang, 2009. "Consumption over the Life Cycle: How Different is Housing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 423-443, July.
  29. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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