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REMS1: Adding Financial Frictions and a Housing Market to REMS

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  • José E. Boscá
  • Javier Ferri

Abstract

We introduce an update of REMS, the model used by the Spanish Ministries of Economy and Finance for ex-ante policy evaluation. We include two new features in the model: credit-constrained consumers, which are added to the existing optimizing consumers and liquidity-constrained (RoTs) consumers; and a market for housing. Credit-constrained consumers can borrow up to a limit defined by the expected value of their houses. Part of the real estate accumulated by patient households is offered to impatient and liquidity-contrained households as house to rent. Impatient households can decide between purchasing houses to occupy themselves or renting houses from patient households. Completely liquidity-constrained households only have access to rented houses. We illustrate how this housing market reacts to different shocks and we simulate the expected eßects of Spain's 2014 fiscal reform.

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  • José E. Boscá & Javier Ferri, 2016. "REMS1: Adding Financial Frictions and a Housing Market to REMS," Studies on the Spanish Economy eee2016-03, FEDEA.
    • Handle: RePEc:fda:fdaeee:eee2016-03
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    1. Eva Ortega & Margarita Rubio & Carlos Thomas, 2011. "House purchase versus rental in Spain," Working Papers 1108, Banco de España.
    2. J. Boscá & A. Díaz & R. Doménech & J. Ferri & E. Pérez & L. Puch, 2010. "A rational expectations model for simulation and policy evaluation of the Spanish economy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 135-169, March.
    3. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
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