A Simple Model of Subprime Borrowers and Credit Growth

Alejandro Justiniano, Giorgio Primiceri and Andrea Tambalotti

American Economic Review, 2016, vol. 106, issue 5, 543-47

Abstract: The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi, 2009). We present a simple model with prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Due to their low income, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on disproportionately more debt than their prime counterparts, who are not subject to that constraint.

JEL-codes: D14 E32 E44 G01 G21 R31 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161087
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://www.aeaweb.org/articles?id=10.1257/aer.p20161087 (application/pdf)
https://www.aeaweb.org/aer/data/10605/P2016_1087_data.zip (application/zip)
https://www.aeaweb.org/aer/ds/10605/P2016_1087_ds.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: A Simple Model of Subprime Borrowers and Credit Growth (2016)
Working Paper: A simple model of subprime borrowers and credit growth (2016)
Working Paper: A Simple Model of Subprime Borrowers and Credit Growth (2016)
Working Paper: A simple model of subprime borrowers and credit growth (2016)
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:aea:aecrev:v:106:y:2016:i:5:p:543-47

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().