Housing and Liquidity

Yu Zhu, Randall Wright and Chao He

No 94, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We study economies where houses, in addition to providing utility as shelter, may also facilitate credit transactions, since home equity can be used as collateral. We document there were big increases in home-equity-backed consumption loans coinciding with the start of the house price boom, and suggest an explanation. When it can be used as collateral, housing can bear a liquidity premium. Since liquidity is endogenous, even when fundamentals are constant and agents fully rational house prices can display complicated equilibrium paths resembling bubbles. Our framework is tractable, with exogenous or with endogenous supply, yet captures several salient features of housing markets. The effects of monetary policy are also discussed.

Date: 2012
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mon and nep-ure
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Citations: View citations in EconPapers (12)

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Journal Article: Housing and Liquidity (2015)
Working Paper: Housing and Liquidity (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:94

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