Natural Expectations and Home Equity Extraction

Roberto Pancrazi and Mario Pietrunti ()

No 984, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In this paper we show that long-run expectations about future housing prices of both households and, especially, financial intermediaries had a large impact on households' indebtedness during the recent boom in U.S. housing prices. We introduce the theory of natural expectations in a collateralized credit market model populated by households and banks and find: (1) that mild variations in long-run forecasts of housing prices result in large differences in the amount of home equity extracted during the boom; and (2) that the equilibrium level of debt and the interest rate are particularly sensitive to financial intermediaries' naturalness.

Keywords: natural expectations; home equity extraction; consumption/saving decision; housing price (search for similar items in EconPapers)
JEL-codes: D84 E21 E32 E44 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-cta, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Natural expectations and home equity extraction (2019)
Working Paper: Natural Expectations and Home Equity Extraction (2015)
Working Paper: Natural Expectations and Home Equity Extraction (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_984_14

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