Collateral Constraints and Macroeconomic Asymmetries
We show that a simple macroeconomic model with collateral constraints displays strong asymmetric responses to boom and bust periods. In a boom triggered by a rise in asset values, constraints become more and more relaxed, the collateral channel is weaker, and the response of aggregate consumption (and output) to a wealth shock is positive but small. In a recession, collateral constraints get tighter and tighter, the collateral channel gets stronger, and the response in consumption from a given change in asset values is negative and large. In experiments from an estimated model, we show how the elasticity of consumption to housing wealth can become nearly three times as large in a recession, even without accounting for the zero bound on interest rates. One implication from our model is that wealth effects computed in normal times might underestimate the true wealth effects which incorporate the response to large, negative wealth shocks such as those occurred during the Great Recession.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- Adelino, Manuel & Schoar, Antoinette & Severino, Felipe, 2015.
"House prices, collateral, and self-employment,"
Journal of Financial Economics,
Elsevier, vol. 117(2), pages 288-306.
- Manuel Adelino & Antoinette Schoar & Felipe Severino, 2013. "House Prices, Collateral and Self-Employment," NBER Working Papers 18868, National Bureau of Economic Research, Inc.
- Chadi S. Abdallah & William D. Lastrapes, 2012. "Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 94-125, October. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:red:sed012:1024. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.