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Credit constraints, house prices, and the impact of life cycle dynamics

Aaron Hedlund

Economics Letters, 2018, vol. 171, issue C, 202-207

Abstract: How does the life cycle impact house price dynamics? This paper investigates how equilibrium house prices respond to a tightening in credit constraints under two different but similarly calibrated models: one an infinite-horizon setting and the other a life-cycle environment. The main conclusion is that house price dynamics are magnified by the presence of life cycle features. Two primary explanations stand out: the distinction between stocks and flows of mortgage debt in the cross-section and the importance of gross housing tenure flows, i.e. churn.

Keywords: House prices; Mortgage debt; Credit constraints; Life cycle models (search for similar items in EconPapers)
JEL-codes: D15 D31 E21 E44 G11 G12 G21 R21 R31 (search for similar items in EconPapers)
Date: 2018
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