The Macroeconomic Effects of Debt Relief Policies During Recessions

Soyoung Lee

Staff Working Papers from Bank of Canada

Abstract: I study debt relief as a stimulus policy using a dynamic stochastic general equilibrium model that captures the rich heterogeneity in households’ balance sheets. In this environment, a large-scale mortgage principal reduction can amplify a recovery, support house prices and lower foreclosures. The nature of the intervention, in terms of its eligibility, liquidity and financing, shapes its macroeconomic impact. This impact rests on how resources are redistributed across households that vary in their marginal propensities to consume. The availability of bankruptcy on unsecured debt quantitatively changes the macroeconomic response to large-scale mortgage relief by reducing precautionary savings.

Keywords: Business fluctuations and cycles; Credit and credit aggregates; Debt management; Housing (search for similar items in EconPapers)
JEL-codes: E21 E32 E6 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-dge, nep-fdg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2023/08/swp2023-48.pdf Full text (application/pdf)

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:bca:bocawp:23-48

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().