Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/51626 
Year of Publication: 
2011
Series/Report no.: 
IZA Discussion Papers No. 5653
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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.
Subjects: 
household debt portfolios
housing
collateral
bankruptcy
commitment
income risk
JEL: 
E21
D91
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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