The purpose of this paper is to examine whether the stock wealth effect of consumption exhibits structural change(s) or behaves asymmetrically over business cycles. We first perform a general test of linearity for the behavior of aggregate consumption in response to changes in stock wealth based...

This paper presents a model developed to explain the life-cycle patterns in both homeownership and portfolio allocation, and the relationship between them, using a model of rational agents. Two key innovations are incorporated into this model. First, housing is explicitly modeled as both a...

Mortgages are one-sided contracts under which the borrower may terminate the contract at any time, while the lender must commit to honoring the terms of the contract throughout its life. There are two aspects to this feature of the contract that are modeled in this paper. The first is that the...

How do the liquidity functions of banks affect investment and growth at different stages of economic development? How do financial fragility and the costs of banking crises evolve with the level of wealth of countries? We analyze these issues using an overlapping generations growth model where...

The events of the 1990s, which led to the collapse of the banking sector in many countries around the world, have renewed the need to devise some preventive policies. However, the success of these preventive measures is contingent on the predictability of the crisis both in nature and extent....

This paper examines the effects that capital inflows have on the financial system in a Diamond-Dybvig environment. Here, an adverse-selection problem arises where short-term capital has the incentive to enter the domestic banking system while long-term capital chooses to stay out. Then,...

Consumption is partly a social activity, yet most studies of consumer behavior treat households in isolation. We investigate familial relationships in consumption patterns using a sample of parents and their children from the Panel Study of Income Dynamics. We find a positive and statistically...

This paper investigates the microfoundation of consumer decisions in Argentina. Structural parameters are estimated following the Euler Equation-GMM approach. Attention is focussed on parameter instability, an empirical difficulty for applying this method often pointed out in the literature. The...

This paper analyzes a unique dataset, which contains results of a large-scale experiment in the credit card market. Two strange phenomena that suggest time inconsistency in consumer behavior are observed: First, consumers prefer an introductory offer which has a lower interest rate with a...

Recent empirical studies suggest that the average marginal propensity to consume (MPC) has declined. This paper explains the declining trend of the MPC with a standard representative consumer model where borrowing constraints become more relaxed as suggested by data. With an increase in...