We use a quantitative equilibrium model with houses, collateralized debt and foreign borrowing to study the impact of global imbalances on the U.S. economy in the 2000s. Our results suggest that the dynamics of foreign capital flows account for between one fourth and one third of the increase in...

Consumer leverage can generate financial crises characterized by increased bankruptcy, tightened credit access and reduced demand for goods.  This paper embeds financial frictions in the mortgage contracts of homeowners within a two-sector economy to show that even at moderate initial levels,...

After the global financial crisis, there is greater awareness of the need to understand the interactions between the financial sector and the real economy and hence the potential for financial instability.  Data from the financial flow of funds, previously relatively neglected, are now seen as...

The paper employs a unique identification strategy that links survey data on household consumption expenditure to bank level data in order to estimate the effects of bank financial distress on consumer credit and consumption expenditures. Specifically, we show that households whose banks were...

We present a model of long-duration collateralized debt with risk of default. Applied to the housing market, it can match the homeownership rate, the average foreclosure rate, and the lower tail of the distribution of home-equity ratios across homeowners prior to the recent crisis. We stress the...

In the run-up to the financial crisis, indebtedness of households and non-financial businesses rose to historically high levels in many OECD countries; gross debt of financial companies rose dramatically relative to GDP. Much of the debt accumulation appears to have been based on excessive...

Mortgage equity withdrawals (MEW) are correlated with covariates consistent with a permanent income framework augmented for credit-constraints. We assess linkages between MEW and financial literacy/education using the Health and Retirement Study (HRS) and Panel Study of Income Dynamics (PSID)....

This paper studies the role of credit market development in an economy with credit frictions. I examine how the provision of credit in connection with collateral assets affects both economic performance and business cycle volatility. First, I analyse the macroeconomic implications of an...

We examine the effect of rising U.S. house prices on borrowing and spending from 2002 to 2006. There is strong heterogeneity in the marginal propensity to borrow and spend. Households in low income zip codes aggressively liquefy home equity when house prices rise, and they increase spending...

This paper documents the cyclical properties of financial intermediation costs and uses their dynamics to explain excess consumption volatility differences across countries in a dynamic stochastic general equilibrium (DSGE) framework. I find that financial development levels have no role in...