This paper studies the aggregate welfare consequences of changes in the prescribed penalty for personal bankruptcy and in social insurance policies when borrowing limits may respond to these changes. It uses a dynamic general equilibrium model of an exchange economy with incomplete markets and a...

This paper presents a macroeconomic model of unsecured consumer debt and default where credit conditions consist of pre-approved interest rates and borrowing limits, a feature of actual credit cards. All loans, irrespective of their size and risk, take place against the same type of credit line,...