This paper compares the equilibrium dynamics of an economy facing an aggregate collateral constraint on external debt … central finding of the paper is that the economy with the aggregate borrowing limit does not generate higher levels of debt …

Government guarantees of private debt deplete equity. The depletion is greatest during periods when the probability of … debt up to the limit the government permits. Declines in asset values raise debt in relation to asset values and thus … asset values to market. Less widely recognized is that guaranteed debt creates an incentive to pay equity out to owners …

This paper studies optimal monetary policy under dynamic debt deleveraging once the zero bound is binding. Unlike the …