Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession

Carlos Garriga () and Aaron Hedlund

No 2017-30, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Using a model with housing search, endogenous credit constraints, and mortgage default, this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross-sectional consumption during the Great Recession. Left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers. An endogenous decline in housing liquidity amplifies the recession by increasing foreclosures, contracting credit, and depressing consumption. Balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution. Low interest rate policies accelerate the recovery in housing and consumption.

Keywords: Housing; Consumption; Liquidity; Debt; Great Recession (search for similar items in EconPapers)
JEL-codes: D31 D83 E21 E22 G11 G12 G21 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2017-10-01
New Economics Papers: this item is included in nep-acc, nep-dge, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Related works:
Journal Article: Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession (2020)
Working Paper: Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession (2016)
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DOI: 10.20955/wp.2017.030

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