Credit risk in general equilibrium

Default and Credit Constraints in General Equilibrium

A recent strand of the literature convincingly demonstrates that both the sovereign default and the household default are properly explained by models in which agents face uninsurable income shocks, while being allowed to strategically default on their debt. We develop a similar model in a general equilibrium setting, and we prove that the market equilibrium features overborrowing as well as to...

Dynamic credit relationships in general equilibrium

We construct a general equilibrium model with private information in which borrowers and lenders enter into long-term dynamic credit relationships. Each new generation of ex ante identical individuals is divided in equilibrium into workers and entrepreneurs. Workers save through financial intermediaries in the form of interest-bearing deposits and supply labor to entrepreneurs in a competitive ...

A General Framework for Pricing Credit Risk

A framework is provided for pricing derivatives on defaultable bonds and other credit-risky contingent claims. The framework is in the spirit of reducedform models, but extends these models to include the case that default can occur only at specific times, such as coupon payment dates. While the framework does not provide an efficient setting for obtaining results about structural models, it is...

Risk and Robustness in General Equilibrium

Risk, Insurance and Wages in General Equilibrium

We estimate the general-equilibrium labor market effects of a large-scale randomized intervention in which we designed and marketed a rainfall index insurance product across three states in India. Marketing agricultural insurance to both cultivators and to agricultural wage laborers allows us to test a general-equilibrium model of wage determination in settings where households supplying labor ...