We study, theoretically and quantitatively, the general equilibrium of an economy in which households smooth consumption by means of both a riskless asset and unsecured loans with the option to default. The default option resembles a bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code. Competitive financial intermediaries offer a menu of loan sizes and interest rates wherein each loan makes zero profits. We prove the existence of a steady-state equilibrium and characterize the circumstances under which a household defaults on its loans. We show that our model accounts for the main statistics regarding bankruptcy and unsecured credit while matching key macroeconomic aggregates and the earnings and wealth distributions. We use this model to address the implications of a recent policy change that introduces a form of "means-testing" for households contemplating a Chapter 7 bankruptcy filing. We find that this policy change yields large welfare gains.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe present a novel and tractable model of long-term sovereign debt. We make two sets of contributions. First, on the substantive side, using Argentina as a test case we show that unlike one-period debt models, our model of long-term sovereign debt is capable of accounting for the average spread, the average default frequency, and the average debt-tooutput ratio of Argentina over the 1991-2001 period without any deterioration in the model's ability to account for Argentina's cyclical facts. Using our calibrated model we determine what Argentina's debt, default frequency and welfare would have been if Argentina had issued only short-term debt. Second, on the methodological side, we advance the theory of sovereign debt begun in Eaton and Gersovitz (1981) by establishing the existence of an equilibrium pricing function for long-term sovereign debt and by providing a fairly complete set of characterization results regarding equilibrium default and borrowing behavior. In addition, we identify and solve a computational problem associated with pricing long-term unsecured debt that stems from nonconvexities introduced by the possibility of default.

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We study, theoretically and quantitatively, the general equilibrium of an economy in which households smooth consumption by means of both a riskless asset and unsecured loans with the option to default. The default option resembles a bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code. Competitive financial intermediaries offer a menu of loan sizes and interest rates wherein each loan makes zero profits. We prove the existence of a steady-state equilibrium and characterize the circumstances under which a household defaults on its loans. We show that our model accounts for the main statistics regarding bankruptcy and unsecured credit while matching key macroeconomic aggregates, and the earnings and wealth distributions. We use this model to address the implications of a recent policy change that introduces a form of "means testing" for households contemplating a Chapter 7 bankruptcy filing. We find that this policy change yields large welfare gains.

Economists, beginning with Alfred Marshall, have studied the significance of cities in the production and exploitation of information externalities that, today, we call knowledge spillovers. This paper presents robust evidence of those effects. We show that patent intensitythe per capita invention rate-is positively related to the density of employment in the highly urbanized portion of MAs. All else equal, a city with twice the employment density (jobs per square mile) of another city will exhibit a patent intensity (patents per capita) that is 20 percent higher. Patent intensity is maximized at an employment density of about 2,200 jobs per square mile. A city with a more competitive market structure or one that is not too large (a population less than 1 million) will also have a higher patent intensity. These findings confirm the widely held view that the nation's densest locations play an important role in creating the flow of ideas that generate innovation and growth.

The evolution of the personal distribution of wealth in a standard neoclassical growth model is studied. If the economy is growing toward the steady state and preferences are such that marginal utility from consumption is infinite (finite) at some (all) positive (non-negative) consumption level(s), then the average saving propensity of agents is positively (negatively) related to their wealth. If the economy is decaying toward the steady state, these relationships are reversed. If wealth and average saving propensity are positively (negatively) related, the distribution of current period wealth Lorenz-dominates (is Lorenz-dominated by) next period's distribution of wealth.

Draft chapter prepared for the Handbook of Macroeconomics, Volume 4. We thank the editors Harald Uhlig and John Taylor, our discussant Manuel Amador, and participants at the March 2015 Handbook conference in Chicago for thoughtful comments. The views expressed here are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia, the Federal Reserve System, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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