This article studies the role of risk sharing in dynamic credit relationships that are secured by physical collateral. It is shown that, when borrowers and lenders cannot commit not to terminate relationships (through default in the first case and liquidation in the second), overinvestment is...

Using Kalman filtering and dynamic factor analysis, the authors decompose aggregate output, consumption, and investment for the G7 countries into factors that are (1) common across all countries and aggregates, (2) common across aggregates within a country, and (3) specific to each individual...