Selected Published Journal Articles
Corbae, D. & Marimon, R. (2011). Introduction to Incompleteness and Uncertainty in Economics. Journal of Economic Theory
(146), 775-784. doi: 10.1016/j.jet.2011.05.001.
Chen, D. & Corbae, D. (2011). On the Welfare Implications of Restricting Bankruptcy Information.
Journal of Macroeconomics
The Fair Credit Reporting Act (FCRA) dictates that adverse events such as a Chapter 7 bankruptcy filing must be removed from an individual’s credit record after 10 years. The intent of the law is to provide partial consumption insurance by giving an individual a fresh start. However, the law obviously weakens incentives not to default, which can result in higher interest rates that in turn reduce intertemporal insurance. Because of this tradeoff, it is unclear how long is the optimal length of time that an adverse event remains on an individual’s credit record. In this paper we assess the welfare consequences of varying the length of time that adverse events can be on one’s credit record. We calibrate the model to US data where the exclusion parameter is set to be 10 years on average. Then we run a counterfactual to find the length that maximizes ex-post economywide welfare using a consumption equivalent measure. The model predicts agents prefer to remove the bankruptcy flag after one year, though the gains are small.
(33), 4-13. doi: 10.1016/j.jmacro.2011.01.001.
Corbae, D. & D'Erasmo, P. & Kuruscu, B. (2009). Politico-Economic Consequences of Rising Wage Inequality". Journal of Monetary Economics
(56), 43-61. doi: 10.1016/j.jmoneco.2008.08.012.
Corbae, D. & Chatterjee, S. & Rios-Rull, J. (2008). A Finite-Life Private-Information Theory of Unsecured Debt. Journal of Economic Theory
(142), 149-177. doi: 10.1016/j.jet.2007.01.018.
Corbae, D. & Duffy, J. (2008). Experiments with Network Formation. Games and Economic Behavior
(64), 81-120. doi: 10.1016/j.geb.2007.10.008.
Chatterjee, S. & Corbae, D. (2007). On the Aggregate Welfare Cost of Great Depression Unemployment.
Journal of Monetary Economics
The potential benefit of policies that eliminate a small likelihood of economic crises is calculated. An economic crisis is defined as an increase in unemployment of the magnitude observed during the Great Depression. For the U.S., the maximum-likelihood estimate of entering a depression is found to be about once every 83 years. The welfare gain from setting this small probability to zero can range between 1 and 7 percent of annual consumption in perpetuity. For most estimates, more than half of these large gains result from a reduction in individual consumption volatility.
Chatterjee, S. & Corbae, D. & Nakajima, M. & Rios-Rull, J. (2007). A Quantitative Theory of Unsecured Consumer Credit with Risk of Default.
We study, theoretically and quantitatively, the general equilibrium of an economy in which households smooth consumption by means of both a riskless asset and unsecured loans with the option to default. The default option resembles a bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code. Competitive financial intermediaries offer a menu of loan sizes and interest rates wherein each loan makes zero profits. We prove the existence of a steady-state equilibrium and characterize the circumstances under which a household defaults on its loans. We show that our model accounts for the main statistics regarding bankruptcy and unsecured credit while matching key macroeconomic aggregates, and the earnings and wealth distributions. We use this model to address the implications of a recent policy change that introduces a form of “means testing” for households contemplating a Chapter 7 bankruptcy filing. We find that this policy change yields large welfare gains.
Corbae, D. & Ritter, J. (2004). Decentralized Credit and Monetary Exchange without Public Record Keeping. Journal of Economic Theory
(24), 933-951. doi: 10.1007/s00199-003-0418-8.
Corbae, D. & Temzelides, T. & Wright, R. (2003). Directed Matching and Monetary Exchange. Econometrica
(71), 731-756. doi: 10.1111/1468-0262.00424.
Corbae, D. & Neely, C. & Weller, P. (2003). Endogenous Realignments in a Target Zone. Oxford Economic Papers
(55), 494-511. doi: 10.1093/oep/55.3.494.
Corbae, D. & Temzelides, T. & Wright, R. (2002). Money and Matching. American Economic Review
(92), 67-71. doi: 10.1257/000282802320189023.
Corbae, D. & Ouliaris, S. & Phillips, P. (2002). Band Spectral Regression with Trending Data. Econometrica
(70), 1067-1109. doi: 10.1111/1468-0262.00319.
Corbae, D. & Cooper, R. (2002). Financial Collapse: A Lesson from the Great Depression. Journal of Economic Theory
(107), 159-190. doi: 10.1006/jeth.2001.2951.
Corbae, D. & Camera, G. (1999). Money and Price Dispersion. International Economic Review
(40), 985-1008. doi: 10.1111/1468-2354.00050.
Corbae, D. & Chatterjee, S. (1996). Money and Finance with Costly Commitment. Journal of Monetary Economics
(37), 225-248. doi: 10.1016/S0304-3932(96)90035-5.
Corbae, D. & Chatterjee, S. (1996). Valuation Equlibria with Transaction Costs. American Economic Review
Corbae, D. & Ouliaris, S. & Phillips, P. (1994). A Reexamination of the Consumption Function Using Frequency Domain Regressions. Empirical Economics
(19), 595-609. doi: 10.1007/BF01205817.
Corbae, D. (1993). Relaxing the Cash-In-Advance Constraint at a Fixed Cost: Are Simple Trigger-Target Portfolio Rules Optimal?. Journal of Economic Dynamics and Control
(17), 51-64. doi: 10.1016/S0165-1889(06)80004-7.
Corbae, D. & Lim, K. & Ouliaris, S. (1992). On Cointegration and Tests of Forward Market Unbiasedness. Review of Economics and Statistics
Corbae, D. & Chatterjee, S. (1992). Endogenous Market Participation and the General Equilibrium Value of Money. Journal of Political Economy
Corbae, D. & Ouliaris, S. (1990). A Test of Long-run PPP Allowing for Structural Breaks. Economic Record
(67), 26-33. doi: 10.1111/j.1475-4932.1990.tb02525.x.
Corbae, D. & Ouliaris, S. (1989). A Random Walk throgh the Gibson Paradox. Journal of Applied Econometrics
(4), 295-303. doi: 10.1002/jae.3950040307.
Corbae, D. & Ouliaris, S. (1988). Cointegration and Tests of Purchasing Power Parity. Review of Economics and Statistics
Corbae, D. & Ouliaris, S. (1986). Robust Tests for Unit Roots in the Foreign Exchange Market. Economics Letters
(22), 375-380. doi: 10.1016/0165-1765(86)90101-1.
Corbae, D. & Ouliaris, S. (1985). The Demand for Money: A Variable Adjustment Model. Economics Letters
(18), 197-200. doi: 10.1016/0165-1765(85)90180-6.