The Role of Collateralized Household Debt in Macroeconomic Stabilization

42 Pages Posted: 29 Dec 2004

See all articles by Jeffrey R. Campbell

Jeffrey R. Campbell

University of Notre Dame; Tilburg University

Zvi Hercowitz

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2004

Abstract

Market innovations following the financial reforms of the early 1980's relaxed collateral constraints on households' borrowing. This paper examines the implications of this development for macroeconomic volatility. We combine collateral constraints on households with heterogeneity of thrift in a calibrated general equilibrium model, and we use this tool to characterize the business cycle implications of realistically lowering minimum down payments and rates of amortization for durable goods purchases. The model predicts that this relaxation of collateral constraints can explain a large fraction of the volatility decline in hours worked, output, household debt, and household durable goods purchases.

Keywords: Labor Supply, Mortgage Debt, Consumer Credit, Real Business Cycles

JEL Classification: E13, E32

Suggested Citation

Campbell, Jeffrey R. and Hercowitz, Zvi, The Role of Collateralized Household Debt in Macroeconomic Stabilization (November 2004). Available at SSRN: https://ssrn.com/abstract=635645 or http://dx.doi.org/10.2139/ssrn.635645

Jeffrey R. Campbell (Contact Author)

University of Notre Dame ( email )

United States

Tilburg University ( email )

Tilburg, 5000 LE
Netherlands

Zvi Hercowitz

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9916 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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