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Household borrowing constraints and residential investment dynamics


  • Khan, Hashmat
  • Rouillard, Jean-François


It is well known that residential investment leads output in the US economy. The main contribution of our paper is to highlight the role of household borrowing constraints in accounting for this fact. We study the role of home-equity loans used to boost consumption as a channel that affects residential investment. We consider a multi-agent model where some home-owning households face borrowing constraints that reflect home-equity loans or refinancing constraints. We show that the severity of the households’ borrowing constraints in an economy can generate this stylized fact of US residential investment dynamics. Interestingly, the model correctly predicts coincident residential investment dynamics in countries with less severe borrowing constraints. This prediction is borne out when the model is calibrated to French data.

Suggested Citation

  • Khan, Hashmat & Rouillard, Jean-François, 2018. "Household borrowing constraints and residential investment dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 95(C), pages 1-18.
  • Handle: RePEc:eee:dyncon:v:95:y:2018:i:c:p:1-18
    DOI: 10.1016/j.jedc.2018.07.007

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    More about this item


    Home-equity loans; Borrowing constraints; Residential investment; Business cycles;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets


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