A model of credit limits and bankruptcy with applications to welfare and indebtedness

@inproceedings{MateosPlanas2009AMO,
  title={A model of credit limits and bankruptcy with applications to welfare and indebtedness},
  author={Xavier Mateos-Planas},
  year={2009}
}
This paper presents a macroeconomic model of unsecured consumer debt and default where credit conditions consist of pre-approved interest rates and borrowing limits, a feature of actual credit cards. All loans, irrespective of their size and risk, take place against the same type of credit line, and some borrowers are credit constrained. This type of situation is shown to arise in a free-entry competitive equilibrium if there are fixed costs in banking and the banks' decisions on interest rates… CONTINUE READING

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