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Housing and Debt over the Life Cycle and over the Business Cycle

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  • Matteo Iacoviello

    ()
    (Federal Reserve Board, USA)

  • Marina Pavan

    ()
    (LEE & Universitat Jaume I, Castellón, Spain)

Abstract

We study housing and debt in a quantitative general equilibrium model. In the cross-section, the model matches the wealth distribution, the age profiles of homeownership and mortgage debt, and the frequency of housing adjustment. In the time-series, the model matches the procyclicality and volatility of housing investment, and the procyclicality of mortgage debt. We use the model to conduct two experiments. First, we investigate the consequences of higher individual income risk and lower downpayments, and find that these two changes can explain, in the model and in the data, the reduced volatility of housing investment, the reduced procyclicality of mortgage debt, and a small fraction of the reduced volatility of GDP. Second, we use the model to look at the behavior of housing investment and mortgage debt in an experiment that mimics the Great Recession: we find that countercyclical financial conditions can account for large drops in housing activity and mortgage debt when the economy is hit by large negative shocks.

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Bibliographic Info

Paper provided by Economics Department, Universitat Jaume I, Castellón (Spain) in its series Working Papers with number 2011/04.

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Length: 62
Date of creation: 2011
Date of revision:
Handle: RePEc:jau:wpaper:2011/04

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Web page: http://www.doctreballeco.uji.es/
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Related research

Keywords: Housing; Housing Investment; Mortgage Debt; Life-cycle Models; Income Risk; Homeownership; Precautionary Savings; Borrowing Constraints;

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  1. Housing and Debt Over the Life Cycle and Over the Business Cycle
    by Christian Zimmermann in NEP-DGE blog on 2009-11-09 21:21:08
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