Tuesday, April 24, 2012

Unsecured Consumer Credit with Risk of Default

Here are my slides for a presentation I'm giving tomorrow on a paper by Chatterjee, Corbae, Nakajima, and Rios-Rull called "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default" (Econometrica, November 2007). It is a very technical paper that incorporates the main characteristics of U.S. consumer bankruptcy law into a general equilibrium model.

The paper represents a relatively recent trend of taking household balance sheets seriously in macroeconomics. Macro models commonly abstract away from household debt, assumed that since one person's assets are another person's liabilities, in the aggregate it washes out. But as Chatterjee et al.'s paper and others by Mian and Eggertsson and Krugman show, the distribution of household debt matters a lot, especially when thinking about the effectiveness (or lack thereof) of various types of fiscal, monetary, and other policies in a recession.

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