Welfare implications of the transition to high household debt
AbstractAggressive deregulation of the mortgage market in the early 1980s triggered innovations that greatly reduced indebted households' required home equity, and a borrowing surge followed. This paper uses a calibrated general equilibrium model of lending from the wealthy to the middle class to evaluate the welfare effects of this reform quantitatively. We find that the "indirect" effects of endogenous interest rate and other relative price changes dominate the "direct" effect of relaxing the constraint. The borrowing household's welfare falls even though the reform directly relaxes a constraint on its trade. The saving household's welfare rises substantially.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 56 (2009)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505566
Financial deregulation Mortgage debt Interest rates;
Other versions of this item:
- Jeffrey R. Campbell & Zvi Hercowitz, 2006. "Welfare implications of the transition to high household debt," Working Paper Series WP-06-27, Federal Reserve Bank of Chicago.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ray C. Fair & John B. Taylor, 1980.
"Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models,"
Cowles Foundation Discussion Papers
564, Cowles Foundation for Research in Economics, Yale University.
- Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-85, July.
- Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear RationalExpectations Models," NBER Technical Working Papers 0005, National Bureau of Economic Research, Inc.
- Richard K. Green & Susan M. Wachter, 2005.
"The American Mortgage in Historical and International Context,"
9094, USC Lusk Center for Real Estate.
- Richard K. Green & Susan M. Wachter, 2005. "The American Mortgage in Historical and International Context," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 93-114, Fall.
- Per Krusell & Anthony A. Smith, Jr., .
"Income and Wealth Heterogeneity in the Macroeconomy,"
GSIA Working Papers
1997-37, Carnegie Mellon University, Tepper School of Business.
- Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
- Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
- Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
- Zvi Hercowitz & Jeffrey C. Campbell, 2005.
"The Role of Collateralized Household Debt in Macroeconomic Stabilization,"
2005 Meeting Papers
120, Society for Economic Dynamics.
- Jeffrey R. Campbell & Zvi Hercowitz, 2005. "The Role of Collateralized Household Debt in Macroeconomic Stabilization," NBER Working Papers 11330, National Bureau of Economic Research, Inc.
- Benjamin M. Friedman, 1992. "Learning From the Reagan Deficits," NBER Working Papers 4022, National Bureau of Economic Research, Inc.
- Friedman, Benjamin M, 1992. "Learning from the Reagan Deficits," American Economic Review, American Economic Association, vol. 82(2), pages 299-304, May.
- Becker, Robert A, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 375-82, September.
- Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.