Many individuals simultaneously have significant credit card debt and money in the bank. The so-called credit card debt puzzle is, given high interest rates on credit cards and low interest rates on bank accounts, why not pay down this debt? Economists have gone to some lengths to explain this....

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin’s q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When insiders’ wealth is scarce, they earn a rate of...

This paper compares wealth portfolios across countries. The household sector in the US and Canada owns much more financial wealth, and much less housing wealth, than the household sector in most of Europe. We address this fact using a calibrated two sector growth model with endogenous financial...

This paper investigate how the degree of credit market development is related to business cycle fluctuations in industrialized countries. I show that a business cycle model with collateral constraints generate a negative relation between the volatility of the cyclical component of output and the...

I propose a new valuation ratio: durables price over the rental cost of capital, which is a direct analogue of the price-dividend ratio. I show that it is a rational forecast of future discount rates and future growth rates of the rental cost. In order to impute the unobservable rental cost, I...

Post-retirement, the model in the main text (published in the Review of Economic Dynamics) reduces to the Merton (1969) problem, which has of course an exact solution. Pre-retirement, however, the agent holds an American option, namely, retire now or keep working. Problems involving American...

We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem. We provide basic intuition in a two-period model and then solve a multi-period model computationally. Our analysis provides insights into life-cycle portfolio choice relevant...