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Collateral constraints and rental markets

d'Albis, Hippolyte and Iliopoulos, Eleni (2013): Collateral constraints and rental markets. Forthcoming in: Economics Letters

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Abstract

We study a benchmark model with collateral constraints and heterogeneous discounting. Contrarily to a rich literature on borrowing limits, we allow for rental markets. By incorporating this missing market, we show that impatient agents choose to rent rather than to own the collateral in the neighborhood of the deterministic steady state. Consequently, impatient agents are not indebted and borrowing constraints play no role in local dynamics.

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