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Collateral constraints and macroeconomic asymmetries

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  • Guerrieri, Luca
  • Iacoviello, Matteo

Abstract

Full information methods are used to estimate a nonlinear general equilibrium model where occasionally binding collateral constraints on housing wealth drive an asymmetry in the link between housing prices and economic activity. The estimated model shows that, as collateral constraints became slack during the housing boom of 2001–2006, expanding housing wealth made a small contribution to consumption growth. By contrast, the housing collapse that followed tightened the constraints and sharply exacerbated the recession of 2007–2009. The empirical relevance of this asymmetry is corroborated by evidence from state- and MSA-level data.

Suggested Citation

  • Guerrieri, Luca & Iacoviello, Matteo, 2017. "Collateral constraints and macroeconomic asymmetries," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 28-49.
  • Handle: RePEc:eee:moneco:v:90:y:2017:i:c:p:28-49
    DOI: 10.1016/j.jmoneco.2017.06.004
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    More about this item

    Keywords

    Housing; Collateral constraints; Occasionally binding constraints; Nonlinear estimation of DSGE models; Great Recession;

    JEL classification:

    • 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
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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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