A simple model of subprime borrowers and credit growth

Giorgio Primiceri, Andrea Tambalotti and Alejandro Justiniano

No 704, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Abstract. The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi, 2009). We present a simple model with prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Due to their low income, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on disproportionately more debt than their prime counterparts, who are not subject to that constraint.

Date: 2016
New Economics Papers: this item is included in nep-ban and nep-sog
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: A Simple Model of Subprime Borrowers and Credit Growth (2016)
Working Paper: A Simple Model of Subprime Borrowers and Credit Growth (2016)
Working Paper: A simple model of subprime borrowers and credit growth (2016)
Working Paper: A Simple Model of Subprime Borrowers and Credit Growth (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:704

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