Working Paper: NBER ID: w10201
Authors: Jeffrey R. Campbell; Zvi Hercowitz
Abstract: 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 current consumption by borrowing against future wages. Collateral constraints generate a positive comovement between the household's debt, the stock of durable goods and labor supply following wage or interest rate shocks---as the household's labor supply adjusts to finance downpayments on new durable good purchases and the subsequent debt repayment. Increasing the speed of debt repayment amplifies these movements.
Keywords: No keywords provided
JEL Codes: E21; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Collateral Constraints (D10) | Labor Supply (J29) |
| Collateral Constraints (D10) | Durable Goods Purchases (L68) |
| Labor Supply (J20) | Durable Goods Purchases (L68) |
| Wage Shocks (J31) | Labor Supply (Constrained Households) (J29) |
| Interest Rate Decline (E43) | Labor Supply (Constrained Households) (J29) |
| Interest Rate Decline (E43) | Labor Supply (Unconstrained Households) (J29) |