Debt Portfolios
Type
discussion paper
Date Issued
2011-04
Author(s)
Abstract
We provide a model with endogenous portfolios of secured and unsecured household debt. Secured debt is collateralized by owner-occupied housing whereas unsecured debt can be discharged according to bankruptcy regulations. We show that the calibrated model matches important quantitative characteristics of observed wealth and debt portfolios for prime-age consumers in the U.S. We then establish the quantitative result that home equity does not serve as informal collateral for unsecured debt since, as in the data, unsecured debtors hold small amounts of home equity in equilibrium. Thus, observed variations in homestead exemptions, which are an important part of U.S. bankruptcy regulation, have a small effect on the quantity and price of unsecured debt.
Language
English
Keywords
household debt portfolios
housing
collateral
bankruptcy
commitment
income risk
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Publisher
IZA Discussion Paper 5653, CEPR Discussion Paper 8359
Subject(s)
Eprints ID
261023