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Housing and debt over the life cycle and over the business cycle

  • Iacoviello, Matteo
  • Pavan, Marina

Housing and mortgage debt are studied in a quantitative general equilibrium model. The model matches wealth distribution, age profiles of homeownership and debt, and frequency of housing adjustment. Over the cycle, the model matches the cyclicality and volatility of housing investment, and the procyclicality of debt. Higher individual income risk and lower downpayments can explain the reduced volatility of housing investment, the reduced procyclicality of debt, and part of the reduced volatility of GDP. In an experiment that mimics the Great Recession, countercyclical financial conditions can account for large drops in housing activity and debt following large negative shocks.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 2 ()
Pages: 221-238

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Handle: RePEc:eee:moneco:v:60:y:2013:i:2:p:221-238
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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