Mortgage borrowing and the boom-bust cycle in consumption and residential investment

Xiaoqing Zhou

Review of Economic Dynamics, 2022, vol. 44, 244-268

Abstract: This paper studies the transmission of the major shocks in the U.S. housing market in the 2000s to consumption and residential investment. Using geographically disaggregated data, I show that residential investment is more responsive to these shocks than consumption, as measured by elasticities and the implied contributions to GDP growth. I develop a structural life-cycle model featuring multiple types of housing investment to understand the large responses of residential investment. Consistent with the microdata, the model generates lumpy debt accumulation, lumpy housing investment and a strong correlation between mortgage borrowing and housing investment at the early stage of the life cycle. In the model, households move up the property ladder by increasing their mortgage debt after they have accumulated enough home equity. Since liquidity constraints and fixed costs prevent especially young homeowners from acquiring their desired home, shocks to their borrowing capacity have a large impact on residential investment. (Copyright: Elsevier)

Keywords: Mortgage borrowing; Consumption; Residential investment; House price; Mortgage rate; Credit supply; Business cycle (search for similar items in EconPapers)
JEL-codes: D1 E2 E3 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2021.03.004
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Mortgage borrowing and the boom-bust cycle in consumption and residential investment" (2021)
Working Paper: Mortgage Borrowing and the Boom-Bust Cycle in Consumption and Residential Investment (2021)
Working Paper: Online Appendix to "Mortgage borrowing and the boom-bust cycle in consumption and residential investment" (2021)
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:red:issued:19-339

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2021.03.004

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().