Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If You Use a Screen Reader

This content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.

Bubbles and Self-Enforcing Debt

Christian Hellwig and Guido Lorenzoni
Econometrica
Vol. 77, No. 4 (Jul., 2009), pp. 1137-1164
Published by: The Econometric Society
Stable URL: http://www.jstor.org/stable/40263856
Page Count: 28
  • Read Online (Free)
  • Download ($10.00)
  • Subscribe ($19.50)
  • Cite this Item
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Bubbles and Self-Enforcing Debt
Preview not available

Abstract

We characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods. First, we show that equilibrium debt limits must satisfy a simple condition that allows agents to exactly roll over existing debt period by period. Second, we provide an equivalence result, whereby the resulting set of equilibrium allocations with self-enforcing private debt is equivalent to the allocations that are sustained with unbacked public debt or rational bubbles. In contrast to the classic result by Bulow and Rogoff (1989a), positive levels of debt are sustainable in our environment because the interest rate is sufficiently low to provide repayment incentives.

Page Thumbnails

  • Thumbnail: Page 
[1137]
    [1137]
  • Thumbnail: Page 
1138
    1138
  • Thumbnail: Page 
1139
    1139
  • Thumbnail: Page 
1140
    1140
  • Thumbnail: Page 
1141
    1141
  • Thumbnail: Page 
1142
    1142
  • Thumbnail: Page 
1143
    1143
  • Thumbnail: Page 
1144
    1144
  • Thumbnail: Page 
1145
    1145
  • Thumbnail: Page 
1146
    1146
  • Thumbnail: Page 
1147
    1147
  • Thumbnail: Page 
1148
    1148
  • Thumbnail: Page 
1149
    1149
  • Thumbnail: Page 
1150
    1150
  • Thumbnail: Page 
1151
    1151
  • Thumbnail: Page 
1152
    1152
  • Thumbnail: Page 
1153
    1153
  • Thumbnail: Page 
1154
    1154
  • Thumbnail: Page 
1155
    1155
  • Thumbnail: Page 
1156
    1156
  • Thumbnail: Page 
1157
    1157
  • Thumbnail: Page 
1158
    1158
  • Thumbnail: Page 
1159
    1159
  • Thumbnail: Page 
1160
    1160
  • Thumbnail: Page 
1161
    1161
  • Thumbnail: Page 
1162
    1162
  • Thumbnail: Page 
1163
    1163
  • Thumbnail: Page 
1164
    1164