Leaning against housing booms fueled by credit

Carlos Cañizares Martínez

Working Paper series from Rimini Centre for Economic Analysis

Abstract: The aim of this paper is to empirically identify the state of the US housing market and to set state-dependent policy rules to smooth the housing cycle. I do so by estimating a three states Markov-switching model of housing prices in which mortgage debt is the state-dependent variable. As a result, the housing market state might be classified as being in housing booms fueled by credit, normal or implosion times. Second, I propose a state-contingent policy rule fed with the probabilities of being in each state. I apply such rule to set a housing counter-cyclical capital buffer (SCCyB) and a time-varying home mortgage interest deduction rule. Finally, I show that such rules have forecasting ability to predict the charge-off rates on real estate residential loans. The significance of this study is that it informs policymakers about the state of the housing market mechanically while it also provides a simple rule that allows the implementation of state-contingent macroprudential policy. Further, the structure of such rule is general enough to be applied to other policy tools.

Keywords: Housing prices; non-linear modeling; Markov switching model; housing demand; household debt; macroprudential policy (search for similar items in EconPapers)
JEL-codes: C22 C24 G51 R21 R31 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://rcea.org/RePEc/pdf/wp23-04.pdf

Related works:
Working Paper: Leaning against housing booms fueled by credit (2023)
Working Paper: Leaning against housing booms fueled by credit (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:23-04

Access Statistics for this paper

More papers in Working Paper series from Rimini Centre for Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Marco Savioli ().