On the importance of borrowing constraints for house price dynamics
AbstractWe study how a household borrowing constraint the the form of a down payment requirement affects house price dynamics in an OLG model with standard preferences. We find that in certain situations the borrowing constraint shapes house price dynamics substantially. The importance of the constraint depends very much on whether house price changes are driven by interest rate or aggregate income shocks. Moreover, because of the borrowing constraint, house price dynamics display substantial asymmetries between large positive and large negative income shocks. These results are related to the fact that the share of borrowing-constrained households is different following different shocks.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 8/2008.
Length: 40 pages
Date of creation: 17 Mar 2008
Date of revision:
house prices; dynamics; borrowing constraints; down payment constraint;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-BEC-2008-03-25 (Business Economics)
- NEP-DGE-2008-03-25 (Dynamic General Equilibrium)
- NEP-GEO-2008-03-25 (Economic Geography)
- NEP-MAC-2008-03-25 (Macroeconomics)
- NEP-URE-2008-03-25 (Urban & Real Estate Economics)
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