Credit, Bankruptcy, and Aggregate Fluctuations
Makoto Nakajima () and
José-Víctor Ríos-Rull ()
No 19-48, Working Papers from Federal Reserve Bank of Philadelphia
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; heterogeneous agents; default; incomplete markets; bankruptcy; debt; business cycle (search for similar items in EconPapers)
JEL-codes: K35 E44 D91 E21 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-law and nep-mac
Date: 2019-11-21, Revised 2019-11-21
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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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