Financial segmentation and collateralized debt in infinite-horizon economies

Miguel Iraola, Fabián Sepúlveda and Juan Pablo Torres-Martinez

Journal of Mathematical Economics, 2019, vol. 80, issue C, 56-69

Abstract: In this paper we address equilibrium existence in economies with default, long-term collateralized debt, and financial market segmentation. We first prove equilibrium existence in the finite-horizon case of our model, by adapting techniques recently applied in two-period economies with segmented financial markets. We then show that a competitive equilibrium exists for infinite-horizon economies when credit markets are composed of finite-lived contracts or infinite-lived contracts that can be refinanced over time. Finally, we show that if credit markets include infinite-lived contracts that cannot be refinanced, an equilibrium exists when per-period utility functions are either additive in at least one commodity or satisfy a substitution condition, which holds for unbounded per-period utility functions. We illustrate our contributions by providing examples of economies that conform with the assumptions of each of our equilibrium existence results.

Keywords: Infinite-horizon economies; Financial segmentation; Non-recourse collateralized loans (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:80:y:2019:i:c:p:56-69

DOI: 10.1016/j.jmateco.2018.10.007

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