Housing and Debt Over the Life Cycle and Over the Business Cycle

Matteo Iacoviello and Marina Pavan

No 723, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We study housing and debt in a quantitative general equilibrium model. In the cross-section, the model matches the wealth distribution, the age profiles of homeownership and mortgage debt, and the frequency of housing adjustment. In the time-series, the model matches the procyclicality and volatility of housing investment, and the procyclicality of mortgage debt. We use the model to conduct two experiments. First, we investigate the consequences of higher individual income risk and lower downpayments, and find that these two changes can explain, in the model and in the data, the reduced volatility of housing investment, the reduced procyclicality of mortgage debt, and a small fraction of the reduced volatility of GDP. Second, we use the model to look at the behavior of housing investment and mortgage debt in an experiment that mimics the Great Recession: we find that countercyclical Önancial conditions can account for large drops in housing activity and mortgage debt when the economy is hit by large negative shocks.

Keywords: Housing; Housing Investment; Household Debt; Life-cycle Models; Income Risk; Homeownership; Dynamic Stochastic General Equilibrium Models. (search for similar items in EconPapers)
JEL-codes: D92 E22 E32 E44 E51 R21 (search for similar items in EconPapers)
Date: 2009-11-02, Revised 2011-09-19
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Housing and debt over the life cycle and over the business cycle (2013)
Working Paper: Housing and debt over the life cycle and over the business cycle (2011)
Working Paper: Housing and debt over the Life Cycle and over the Business Cycle (2011)
Working Paper: Housing and debt over the life cycle and over the business cycle (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:723

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