Default and Credit Constraint in General equilibrium
We study an economy where infinitely living agents face uninsurable shocks and are allowed default on their debt. After having defaulted, agents are excluded from the economy. We present a equilibrium definition allowing for both credit constraints and default inequilibrium. Indeed, existing theories introduce either default of credit constraint in general equilibrium, but never both. We prove that the optimal allocation includes both credit constraints and default, while the market allocation is associated with too much credit and too many default in equilibrium.
|Date of creation:||2011|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
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- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007.
"A Quantitative Theory of Unsecured Consumer Credit with Risk of Default,"
Econometric Society, vol. 75(6), pages 1525-1589, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Centro de Altisimos Estudios Rios Pe©rez(CAERP) 2, Centro de Altisimos Estudios Rios Perez (CAERP).
- 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.
- Timothy J. Kehoe & David K. Levine, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 865-888.
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