Strategic default behavior suggests that the default process is not only a matter of inability to pay. Economic costs and benefits affect the incidence and timing of defaults. As with prior research, the authors find that people default strategically as their home value falls below the mortgage...

How does bankruptcy affect the dynamics of aggregate consumption? We quantify the trade-off between the insurance and creditworthiness effects of bankruptcy in response to tighter credit. We show that bankruptcy dampens the effect of tighter credit on aggregate consumption on impact because it...

We consider a Keynes-Goodwin model of effective demand and the distributive cycle where workers purchase goods and houses with marginal propensity significantly larger than one. They therefore need credit, supplied from asset holders, and have to pay interest on their outstanding debt. In this...