Endogenous credit limits with small default costs

• 成果类型: Article
• 署名作者: Azariadis, Costas; Kaas, Leo
• 署名单位: Washington University (WUSTL); Federal Reserve System - USA; Federal Reserve Bank - St. Louis; University of Konstanz
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2012.08.004
• 发表日期: 2013
• 页码: 806-824
• 关键词: bankruptcy; Endogenous solvency constraints

摘要

We analyze an exchange economy of unsecured credit where borrowers have the option to declare bankruptcy in which case they are temporarily excluded from financial markets Endogenous credit limits are imposed that are just tight enough to prevent default. Economies with temporary exclusion differ from their permanent exclusion counterparts in two important properties. If households are extremely patient, then the first-best allocation is an equilibrium in the latter economies but not necessarily in the former. In addition, temporary exclusion permits multiple stationary equilibria, with both complete and with incomplete consumption smoothing. (C) 2013 Elsevier Inc. All rights reserved.