The Role of Collateralized Household Debt in Macroeconomic Stabilization

Jeffrey Campbell and Zvi Hercowitz ()

No 11330, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Market innovations following the financial reforms of the early 1980s relaxed collateral constraints on household borrowing. The present paper examines the contribution of this development to the macroeconomic stabilization that occurred shortly thereafter. The model combines collateral constraints on households with heterogeneity of thrift in a calibrated general equilibrium setup. We use this tool to characterize the business cycle implications of lowering required down payments and rates of amortization for durable goods purchases as in the early 1980s. The model predicts that this relaxation of collateral constraints can explain a large fraction of the actual volatility decline in hours worked, output, household debt, and household durable goods purchases.

JEL-codes: E3 (search for similar items in EconPapers)
Date: 2005-05
Note: EFG
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Citations: View citations in EconPapers (135)

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Related works:
Working Paper: The Role of Collateralized Household Debt in Macroeconomic Stabilization (2006)
Working Paper: The Role of Collateralized Household Debt in Macroeconomic Stabilization (2005)
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