We show how realistic occasionally binding collateral constraints increase macroeconomic volatility. Collateral constraints imply that the effect of consumers' choices on the price of collateral feeds back into the set of feasible choices, thus giving rise to multiple equilibria. We characterize...

We use a heterogeneous-agent model, in which labor income is risky and markets are incomplete, to analyze consumer debt portfolios of secured and unsecured debt in the US. Compared with previous research, we emphasize the role of durables which not only generate utility but also serve as debt...

Consumer debt has increased substantially in the US since the 1980s. We show in a incomplete-markets model with durables and occasionally binding collateral constraints that neither the higher uninsurable income risk of US consumers nor the financial deregulation explain this increase. The...

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...

When borrowing is limited by possible insolvency, a higher lower bound for future income affords earlier consumption and higher welfare. Limited opportunities for consumption smoothing also imply that prospects of upward income mobility have smaller beneficial effects for workers whose labor...