We show that the size of collateralized household debt determines an economy's vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt...

This paper develops a notion of consumer confidence within a dynamic competitive equilibrium framework. In any situation where multiple equilibrium prices on next-period spot markets are equally supported by the state of the economy, confidence is encoded in the subjective probabilities...

We show that the size of collateralized household debt determines an economy's vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt...

This paper develops a notion of consumer confidence within a dynamic competitive equilibrium framework. In any situation where multiple equilibrium prices on next‐period spot markets are equally supported by the state of the economy, confidence is encoded in the subjective probabilities...

On the one hand, recently a number of theoretical models have highlighted the role of credit market frictions in propagating and amplifying macroeconomic shocks. On the other hand, it still seems an open question whether this role is quantitatively significant. Our paper tries to fill this gap....

We present a heterogeneous-agent model with incomplete markets, in which household debt need to be collateralized by durable holdings and the lowest attainable labor income. Labor income is risky and households decide how much non-durables to consume, on their position of secured debt and the...