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

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  • Iacoviello, Matteo
  • Pavan, Marina

Abstract

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.

Suggested Citation

  • Iacoviello, Matteo & Pavan, Marina, 2013. "Housing and debt over the life cycle and over the business cycle," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 221-238.
  • Handle: RePEc:eee:moneco:v:60:y:2013:i:2:p:221-238
    DOI: 10.1016/j.jmoneco.2012.10.020
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    More about this item

    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
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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