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Notes on collateral constraints in a simple model of housing

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  • Andreas Hornstein

Abstract

These notes provide the derivations of results stated without proof in Hornstein (2009). For a simple model of the demand for housing, it is shown that on a balanced growth path, the rate at which the relative price of housing changes over time is determined by the relative productivity growth rates of the housing sector and the rest of the economy. The model is then modified to include a collateral constrained consumer. We show that collateral constraints may affect the level of the housing price path, but they do not affect the growth rate of housing prices.

Suggested Citation

  • Andreas Hornstein, 2009. "Notes on collateral constraints in a simple model of housing," Working Paper 09-03, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:09-03
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    References listed on IDEAS

    as
    1. Jeffrey R. Campbell & Zvi Hercowitz, 2005. "The Role of Collateralized Household Debt in Macroeconomic Stabilization," NBER Working Papers 11330, National Bureau of Economic Research, Inc.
    2. Andreas Hornstein, 2009. "Problems for a fundamental theory of house prices," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 95(Win), pages 1-24.
    3. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
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