Borrowing Constraints and House Price Dynamics: The Case of Large Shocks
We study how household borrowing constraints shape house price dynamics. We consider the fully non-linear dynamics following large aggregate shocks in a calibrated OLG model with standard preferences. We find that the main effect of a down payment constraint is to make house price dynamics asymmetric between large positive and large negative income shocks: prices increase rapidly following the impact effect of a large adverse income shock but decline slowly following the impact effect of a positive income shock. This asymmetry stems from the fact that the share of borrowing constrained households changes over time. However, the down payment constraint does not substantially magnify the impact effect of adverse income or interest rate shocks.
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.
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.
Volume (Year): 16 (2012)
Issue (Month): 3 (September)
|Contact details of provider:|| Web page: https://www.degruyter.com|
|Order Information:||Web: https://www.degruyter.com/view/j/snde|
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.:
- John Y. Campbell & N. Gregory Mankiw, 1986.
"Are Output Fluctuations Transitory?,"
NBER Working Papers
1916, National Bureau of Economic Research, Inc.
- Ortalo-Magné, François & Rady, Sven, 2001.
"Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints,"
CEPR Discussion Papers
3015, C.E.P.R. Discussion Papers.
- François Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 459-485.
- Ortalo-Magné, François & Rady, Sven, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraint," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 50, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Sven Rady, 2001. "Housing Market Dynamics: on the Contribution of Income Shocks and Credit Constraints," FMG Discussion Papers dp375, Financial Markets Group.
- François Ortalo-Magné & Sven Rady, 2002. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Wisconsin-Madison CULER working papers 02-01, University of Wisconsin Center for Urban Land Economic Research.
- Sven Rady & François Ortalo-Magné, 2001. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," CESifo Working Paper Series 470, CESifo Group Munich.
- Elias Oikarinen, 2008.
"Interaction between housing prices and household borrowing - the Finnish case,"
29, Aboa Centre for Economics.
- Oikarinen, Elias, 2009. "Interaction between housing prices and household borrowing: The Finnish case," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 747-756, April.
- Ortalo-Magne, Francois & Rady, Sven, 1999.
"Boom in, bust out: Young households and the housing price cycle,"
European Economic Review,
Elsevier, vol. 43(4-6), pages 755-766, April.
- Francois Ortalo-Magne & Sven Rady, 1998. "Boom In, Bust Out: Young Households and the Housing Price Cycle," Finance 9810004, EconWPA, revised 25 Oct 1998.
- Sven Rady, 1998. "Boom In, Bust Out: Young Households and the Housing Price Cycle," FMG Discussion Papers dp310, Financial Markets Group.
- Berg, Lennart, 1994. "Household Savings and Debts: The Experience of the Nordic Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 42-53, Summer.
- Seppo Honkapohja & Erkki A. Koskela & Willi Leibfritz & Roope Uusitalo, 2009. "Economic Prosperity Recaptured: The Finnish Path from Crisis to Rapid Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012693.
- Morris A. Davis & Francois Ortalo-Magne, 2011.
"Household Expenditures, Wages, Rents,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 248-261, April.
- Morris Davis & Francois Ortalo-Magne, 2010. "Code files for "Household Expenditures, Wages, Rents"," Computer Codes 09-92, Review of Economic Dynamics.
- Morris A. Davis & François Ortalo-Magné, 2007. "Household Expenditures, Wages, Rents," CESifo Working Paper Series 2156, CESifo Group Munich.
- Matteo Iacoviello, 2002.
"House prices, borrowing constraints and monetary policy in the business cycle,"
Boston College Working Papers in Economics
542, Boston College Department of Economics, revised 06 Dec 2004.
- 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.
- Owen Lamont & Jeremy C. Stein, 1999.
"Leverage and House-Price Dynamics in U.S. Cities,"
RAND Journal of Economics,
The RAND Corporation, vol. 30(3), pages 498-514, Autumn.
- Matteo Iacoviello & Stefano Neri, 2008.
"Housing market spillovers : evidence from an estimated DSGE model,"
Working Paper Research
145, National Bank of Belgium.
- Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
- Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers: Evidence from an estimated DSGE model," Temi di discussione (Economic working papers) 659, Bank of Italy, Economic Research and International Relations Area.
- Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009.
- Gervais, Martin, 2002.
"Housing taxation and capital accumulation,"
Journal of Monetary Economics,
Elsevier, vol. 49(7), pages 1461-1489, October.
- Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 379-406.
- Cordoba, Juan Carlos & Ripoll, Marla, 2010.
"Credit Cycles Redux,"
Staff General Research Papers Archive
32122, Iowa State University, Department of Economics.
- Koskela, Erkki & Loikkanen, Heikki A. & Viren, Matti, 1992. "House prices, household saving and financial market liberalization in Finland," European Economic Review, Elsevier, vol. 36(2-3), pages 549-558, April.
- Monacelli, Tommaso, 2009.
"New Keynesian models, durable goods, and collateral constraints,"
Journal of Monetary Economics,
Elsevier, vol. 56(2), pages 242-254, March.
- Monacelli, Tommaso, 2006. "New Keynesian Models, Durable Goods and Collateral Constraints," CEPR Discussion Papers 5916, C.E.P.R. Discussion Papers.
- Benito, Andrew, 2006. "The down-payment constraint and UK housing market: Does the theory fit the facts?," Journal of Housing Economics, Elsevier, vol. 15(1), pages 1-20, March.
- Attanasio, Orazio P & Weber, Guglielmo, 1994. "The UK Consumption Boom of the Late 1980s: Aggregate Implications of Microeconomic Evidence," Economic Journal, Royal Economic Society, vol. 104(427), pages 1269-1302, November.
When requesting a correction, please mention this item's handle: RePEc:bpj:sndecm:v:16:y:2012:i:3:n:2. 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: (Peter Golla)
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.