Household leverage, housing markets, and macroeconomic fluctuations

Phuong Ngo

Journal of Macroeconomics, 2015, vol. 44, issue C, 191-207

Abstract: This paper examines implications of housing and household leverage on macroeconomic fluctuations under credit shocks in the presence of the zero lower bound (ZLB) on nominal interest rates. To this end, I build a housing model by incorporating houses into a standard deleveraging model and allow debt limits to be endogenous. I find that, under an adverse credit shock, only with high leverage can the housing model generate more macroeconomic fluctuations with the nominal interest rate being more likely to hit the ZLB, compared to the standard deleveraging model without housing. In addition, the relative amplification is more pronounced under a shock that causes the ZLB to bind in both the models. Importantly, the ZLB plays a key role in generating a significant decline in the housing price under a particularly adverse credit shock.

Keywords: Household leverage; Housing markets; House prices; ZLB; Deleveraging; Credit shocks (search for similar items in EconPapers)
JEL-codes: E21 E31 E44 E58 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070415000300
Full text for ScienceDirect subscribers only

Related works:
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:eee:jmacro:v:44:y:2015:i:c:p:191-207

DOI: 10.1016/j.jmacro.2015.02.005

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).