We review the theory of leverage developed in collateral equilibrium models with incomplete markets. We explain how …-sectional implications of multiple leverage cycles, including contagion, flight to collateral, and swings in the issuance volume of the …

: agents choose how much to borrow using a risky asset as collateral, and there are no ad hoc collateral constraints. When the … risky asset is financial-namely, its payoff does not depend on ownership (such as a bond)- collateral requirements are high … as a firm)-collateral requirements are lower and default occurs. The experimental outcomes are in line with the theory …