A Stochastic Infinite-Horizon Economy with Secured Lending, or Unsecured Lending and Bankruptcy

Ioannis Karatzas, Martin Shubik and William D. Sudderth
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Ioannis Karatzas: Columbia University

No 1156, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Modeling problems for a monetary economy are discussed and some examples are presented in the context of an infinite-horizon economy with one or two types of traders, who use fiat money to buy a single perishable consumption good. Three instances are considered, all with transactions in fiat money. The first model has no borrowing or lending. The second model permits both borrowing and lending, but all loans are secured. The third model has borrowing and unsecured lending, and takes into account the presence of debtors who are unable to honor their debts and go bankrupt. Borrowing and depositing take place through an outside bank, although in some circumstances a money market could be used instead. Conditions for different forms of lending are discussed. This is a survey of three technical papers, where the mathematical models are developed in detail and the proofs are supplied.

Pages: 33 pages
Date: 1997-08
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Working Paper: A Stochastic Infinite-Horizon Economy with Secured Lending or Unsecured Lending and Bankruptcy (1997)
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