Credit, Bankruptcy, and Aggregate Fluctuations

Makoto Nakajima () and José-Víctor Ríos-Rull
Authors registered in the RePEc Author Service: José-Víctor Ríos-Rull

No 19-48, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We document the cyclical properties of unsecured consumer credit (procyclical and volatile) and of consumer bankruptcies (countercyclical and very volatile). Using a growth model with household heterogeneity in earnings and assets with access to unsecured credit (because of bankruptcy costs) and aggregate shocks, we show that the cyclical behavior of household earnings growth accounts for these properties, albeit not for the large volatility of credit. We ?nd that tilting household consumption towards goods that can be purchased on credit and a slight countercyclicality in the terms of access to credit match the sizes of credit and bankruptcy volatilities. We also ?nd that when the right to ?le for bankruptcy does not exist unsecured credit is countercyclical.

Keywords: consumer credit; default; bankruptcy; debt; business cycles; heterogeneous agents; incomplete markets (search for similar items in EconPapers)
JEL-codes: D91 E21 E32 E44 K35 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2019-11-21
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-law and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Credit, Bankruptcy, and Aggregate Fluctuations (2015)
Working Paper: Credit, bankruptcy, and aggregate fluctuations (2014)
Working Paper: Credit, Bankruptcy, and Aggregate Fluctuations (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:19-48

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DOI: 10.21799/frbp.wp.2019.48

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