Advanced Search
MyIDEAS: Login to save this paper or follow this series

Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises

Contents:

Author Info

  • Karsten Jeske
  • Dirk Krueger
  • Kurt Mitman

Abstract

This paper evaluates the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market. In order to do so we construct a model with heterogeneous, infinitely lived households and competitive housing and mortgage markets. Households have the option to default on their mortgages, with the consequence of having their homes foreclosed. We model the bailout guarantee as a government provided and tax-financed mortgage interest rate subsidy. We find that eliminating this subsidy leads to substantially lower equilibrium mortgage origination and increases aggregate welfare, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: eliminating it benefits low-income and low-asset households who did not own homes or had small mortgages, while lowering the welfare of high-income, high-asset households.

Download Info

If 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.
File URL: http://www.nber.org/papers/w17537.pdf
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

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 Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17537.

as in new window
Length:
Date of creation: Oct 2011
Date of revision:
Publication status: published as Housing, Mortgage Bailout Guarantees and the Macro Economy (with K. Jeske and Kurt Mitman), Journal of Monetary Economics, Vol. 60, 917- 935.
Handle: RePEc:nbr:nberwo:17537

Note: AP EFG
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Michael Haliassos, Alexander Michaelides, 2000. "Portfolio Choice And Liquidity Constraints," Computing in Economics and Finance 2000, Society for Computational Economics 297, Society for Computational Economics.
  2. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(7), pages 1461-1489, October.
  3. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, Econometric Society, vol. 70(1), pages 47-89, January.
  4. Igor Livshits & James MacGee & Michele Tertilt, 2005. "Consumer Bankruptcy: A Fresh Start," Discussion Papers, Stanford Institute for Economic Policy Research 04-011, Stanford Institute for Economic Policy Research.
  5. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, Econometric Society, vol. 75(6), pages 1525-1589, November.
  6. John Y. Campbell & Stefano Giglio & Parag Pathak, 2009. "Forced Sales and House Prices," NBER Working Papers 14866, National Bureau of Economic Research, Inc.
  7. Fernández-Villaverde, Jesús & Krueger, Dirk, 2011. "Consumption And Saving Over The Life Cycle: How Important Are Consumer Durables?," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 15(05), pages 725-770, November.
  8. Anthony Pennington-Cross, 2006. "The Value of Foreclosed Property," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 28(2), pages 193-214.
  9. Christopher L. Foote & Kristopher S. Gerardi & Lorenz Goette & Paul S. Willen, 2009. "Reducing foreclosures," Public Policy Discussion Paper, Federal Reserve Bank of Boston 09-2, Federal Reserve Bank of Boston.
  10. Kristopher S. Gerardi & Harvey S. Rosen & Paul S. Willen, 2010. "The Impact of Deregulation and Financial Innovation on Consumers: The Case of the Mortgage Market," Journal of Finance, American Finance Association, American Finance Association, vol. 65(1), pages 333-360, 02.
  11. Atif Mian & Amir Sufi & Francesco Trebbi, 2011. "Foreclosures, House Prices, and the Real Economy," NBER Working Papers 16685, National Bureau of Economic Research, Inc.
  12. W. Scott Frame & Larry Wall, 2002. "Financing housing through government-sponsored enterprises," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q1, pages 29-43.
  13. Satyajit Chatterjee & Burcu Eyigungor, 2009. "Foreclosures and house price dynamics: a quantitative analysis of the mortgage crisis and the foreclosure prevention policy," Working Papers 09-22, Federal Reserve Bank of Philadelphia.
  14. Matt Chambers & Carlos Garriga & Don Schlagenhauf, 2009. "The Loan Structure and Housing Tenure Decisions in an Equilibrium Model of Mortgage Choice," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 444-468, July.
  15. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(5-6), pages 953-969.
  16. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 371-96, March.
  17. W. Scott Frame & Larry Wall, 2002. "Fannie Mae's and Freddie Mac's voluntary initiatives: Lessons from banking," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q1, pages 45-59.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Satyajit Chatterjee & Burcu Eyigungor, 2011. "A quantitative analysis of the U.S. housing and mortgage markets and the foreclosure crisis," Working Papers 11-26, Federal Reserve Bank of Philadelphia.
  2. Jonathan Halket & Santhanagopalan Vasudev, 2013. "Online Appendix to "Saving Up or Settling Down: Home Ownership over the Life Cycle," Technical Appendices 12-89, Review of Economic Dynamics.
  3. Børsum, Øystein, 2010. "Contagious Mortgage Default," Memorandum, Oslo University, Department of Economics 10/2010, Oslo University, Department of Economics.
  4. Juan Carlos Hatchondo & Leonardo Martinez & Juan M. Sanchez, 2011. "Mortgage defaults," Working Paper, Federal Reserve Bank of Richmond 11-05, Federal Reserve Bank of Richmond.
  5. Jonathan Halket & Santhanagopalan Vasudev, 2012. "Home Ownership, Savings, and Mobility Over The Life Cycle," Economics Discussion Papers, University of Essex, Department of Economics 712, University of Essex, Department of Economics.
  6. Stefano Giglio & Matteo Maggiori & Johannes Stroebel, 2014. "Very Long-Run Discount Rates," NBER Working Papers 20133, National Bureau of Economic Research, Inc.
  7. Hui Chen & Michael Michaux & Nikolai Roussanov, 2013. "Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty," NBER Working Papers 19421, National Bureau of Economic Research, Inc.
  8. James Kahn & Omer Acikgoz, 2013. "Mortgage Guarantees and House Price Inflation: A Quantitative Analysis," 2013 Meeting Papers, Society for Economic Dynamics 1075, Society for Economic Dynamics.
  9. Patrick Bajari & Phoebe Chan & Dirk Krueger & Daniel Miller, 2010. "A Dynamic Model of Housing Demand: Estimation and Policy Implications," NBER Working Papers 15955, National Bureau of Economic Research, Inc.
  10. Grey Gordon & Pablo Guerrón-Quintana, 2013. "Dynamics of investment, debt, and default," Working Papers 13-18, Federal Reserve Bank of Philadelphia.
  11. Dean Corbae & Erwan Quintin, 2013. "Leverage and the Foreclosure Crisis," NBER Working Papers 19323, National Bureau of Economic Research, Inc.
  12. Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2011. "Loan guarantees for consumer credit markets," Working Paper, Federal Reserve Bank of Richmond 11-06, Federal Reserve Bank of Richmond.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17537. See general 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: ().

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.