"This paper characterizes the labor supply and borrowing of a household facing collateral requirements that limit its debt and compel it to accumulate equity in its durable goods stock. The household's discount rate exceeds the market rate of interest, so it would otherwise finance increased...

"Market innovations following the financial reforms of the early 1980's relaxed collateral constraints on households' borrowing. This paper examines the implications of this development for macroeconomic volatility. We combine collateral constraints on households with heterogeneity of thrift in...