This paper investigates how interest rates affect the probability of default (PD) in a general equilibrium incomplete markets economy. We show that the PD depends positively on the loan interest rate and negatively on the economy base interest rate. Empirically, this finding is confirmed by...

We study an infinite-horizon economy with incomplete markets where default is explicitly allowed, contrary to the GE11General equilibrium with complete markets. model (where default is ruled out by assumption). The time and uncertainty are modeled by a countable infinite event-tree with a unique...

We study a two-period general equilibrium model with incomplete asset markets and default. We make collateral endogenous by allowing each seller of assets to fix the level of collateral. Sellers are required to provide collateral whose first-period value, per unit of asset, exceeds the asset...