Heterogeneous Mortgage Markets: Implications for Business Cycles and Welfare in the EMU

Gareis Johannes and Eric Mayer
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Gareis Johannes: Mayer University of Würzburg,Würzburg, Germany

German Economic Review, 2017, vol. 18, issue 2, 133-153

Abstract: This paper evaluates business cycle effects of asymmetric cross-country mortgage market developments in a monetary union. By employing a two-country New Keynesian DSGE model with collateral constraints tied to housing values, we show that a change in institutional characteristics of mortgage markets, such as the loan-to-value (LTV) ratio, is an important driver of asymmetric developments in housing markets and economic activity. Our analysis suggests that the home country where credit standards are lax booms, while the rest of European Monetary Union faces a negative output gap. Overall welfare is lower if LTV ratios are higher.

Keywords: Housing; monetary union; cross-country heterogeneity (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1111/geer.12087

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