REMS1: Adding Financial Frictions and a Housing Market to REMS

José Boscá and Javier Ferri

No eee2016-03, Studies on the Spanish Economy from FEDEA

Abstract: We introduce an update of REMS, the model used by the Spanish Ministries of Economy and Finance for ex-ante policy evaluation. We include two new features in the model: credit-constrained consumers, which are added to the existing optimizing consumers and liquidity-constrained (RoTs) consumers; and a market for housing. Credit-constrained consumers can borrow up to a limit defined by the expected value of their houses. Part of the real estate accumulated by patient households is offered to impatient and liquidity-contrained households as house to rent. Impatient households can decide between purchasing houses to occupy themselves or renting houses from patient households. Completely liquidity-constrained households only have access to rented houses. We illustrate how this housing market reacts to different shocks and we simulate the expected eßects of Spain's 2014 fiscal reform.

Date: 2016-01
New Economics Papers: this item is included in nep-dge and nep-ure
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