This paper combines impatience with large recurring expenditures to replicate the observation that middle-class U.S. households consume much more out of transitory income than permanent income theory predicts. In the present model, households make a large recurring expenditure of exogenous...

Aggressive deregulation of the mortgage market in the early 1980s triggered innovations that greatly reduced indebted households' required home equity, and a borrowing surge followed. This paper uses a calibrated general equilibrium model of lending from the wealthy to the middle class to...

Aggressive deregulation of the mortgage market in the early 1980s triggered innovations that greatly reduced the required home equity of U.S. households. This allowed households to cash-out a large part of accumulated equity, which equaled 71 percent of GDP in 1982. A borrowing surge followed:...