Credit, Bankruptcy, and Aggregate Fluctuations
62 Pages Posted: 27 Nov 2019
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Credit, Bankruptcy, and Aggregate Fluctuations
Credit, Bankruptcy, and Aggregate Fluctuations
Credit, Bankruptcy, and Aggregate Fluctuations
Date Written: 2019-11-21
Abstract
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 find 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 find that when the right to file for bankruptcy does not exist unsecured credit is countercyclical.
Keywords: consumer credit, default, bankruptcy, debt, business cycle, heterogeneous agents, incomplete markets
JEL Classification: D91, E21, E32, E44, K35
Suggested Citation: Suggested Citation
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