Iraola, Miguel and TorresMartínez, Juan Pablo (2013): Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Nonrecourse Loans.

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Abstract
We address a dynamic general equilibrium model where securities are backed by collateralized loans, and borrowers face endogenous liquidity contractions and financial participation constraints. Although the only payment enforcement is the seizure of collateral guarantees, restrictions on credit access make individually optimal payment strategiescoupon payment, prepayment, and defaultsensitive to idiosyncratic factors. In particular, the lack of liquidity and the presence of financial participation constraints rationalize the prevalence of negative equity loans. We prove equilibrium existence, characterize optimal payment strategies, and provide a numerical example illustrating our main results.
Item Type:  MPRA Paper 

Original Title:  Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Nonrecourse Loans 
Language:  English 
Keywords:  AssetBacked Securities  Liquidity Contractions  Incomplete Financial Participation 
Subjects:  D  Microeconomics > D5  General Equilibrium and Disequilibrium > D52  Incomplete Markets D  Microeconomics > D5  General Equilibrium and Disequilibrium > D53  Financial Markets 
Item ID:  46838 
Depositing User:  Juan Pablo TorresMartínez 
Date Deposited:  08 May 2013 18:39 
Last Modified:  29 Sep 2019 05:29 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/46838 