Essays on macroeconomic implications of uninsured idiosyncratic uncertainty

We study macroeconomic implications of uninsured idiosyncratic uncertainty with two applications. The first two essays focus on the consumer bankruptcy, and the third essay is an analysis of prices of housing and financial assets.;In the first essay, Quantitative Theory of Unsecured Consumer Credit with Risk of Default, we study the equilibrium of the model with (i) households facing uninsured idiosyncratic uncertainty, (ii) competitive unsecured loan industry, and (iii) consumer bankruptcy scheme similar to the one under Chapter 7 of the U.S. Bankruptcy Code. We first demonstrate the existence of a competitive equilibrium and characterize the circumstances under which a household defaults on its loans. Then we calibrate the model to the U.S. economy to address the macroeconomic and welfare implications of two policy experiments; (i) shorter punishment periods, and (ii) elimination of the bankruptcy option for households with above-median income.;In the second essay, Default and Aggregate Fluctuations in Storage Economies, we extend the model in the first essay to include aggregate uncertainty to economic activity. We use the model to explore the extent to which aggregate events are amplified or smoothed via the mechanism of consumer bankruptcy filings. We report statistics produced by experiments with model economies with various aggregate shocks. Based on these experiments, we analyze the reaction of households to various aggregate shocks and the interaction between households and the loan industry, and discuss the aggregate implications of these actions.;In the third essay, Rising Earnings Instability, and Prices of Housing and Financial Asset, we ask why the prices of financial assets in the U.S. has increased sharply, while the housing prices has increased by less between mid-1970s to mid-1990s. We suggest that the well-documented rise in instability of earnings helps accounting for this differential rise in prices. In order to quantitatively evaluate the effect of rising earnings instability on asset prices, we construct a calibrated life-cycle model with housing and financial asset. In response to the rise in earnings instability, the model generates a 15% increase in the price of financial assets and a 10% increase in the housing price.