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

  • Matteo Iacoviello
  • Marina Pavan

This paper describes an equilibrium life-cycle model of housing where nonconvex adjustment costs lead households to adjust their housing choice infrequently and by large amounts when they do so. In the cross-sectional dimension, the model matches the wealth distribution; the age profiles of consumption, homeownership, and mortgage debt; and data on the frequency of housing adjustment. In the time-series dimension, the model accounts for the procyclicality and volatility of housing investment, and for the procyclical behavior of household debt.

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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 09-12.

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Date of creation: 2009
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Handle: RePEc:fip:fedbwp:09-12
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