Collateral constraints and macroeconomic asymmetries

Luca Guerrieri and Matteo Iacoviello

No 1082, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A model with collateral constraints displays asymmetric responses to house price changes. When housing wealth is high, collateral constraints become slack, and the response of consumption and hours to shocks that move house prices is positive yet small. When housing wealth is low, collateral constraints become tight, and the response of consumption and hours to house price changes is negative and large. This finding is corroborated using evidence from national, state-level, and MSA-level data. Wealth effects computed in normal times may underestimate the response to large house price declines. Debt-relief policies may be far more effective during protracted housing slumps.

Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mac, nep-spo and nep-ure
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Collateral constraints and macroeconomic asymmetries (2017)
Working Paper: Collateral constraints and macroeconomic asymmetries (2015)
Working Paper: Collateral Constraints and Macroeconomic Asymmetries (2012)
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