American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession
American Economic Review
vol. 110,
no. 6, June 2020
(pp. 1603–34)
Abstract
Using a quantitative heterogeneous agents macro-housing model and detailed microdata, this paper studies the drivers of the 2006–2011 housing bust, its spillovers to consumption and the credit market, and the ability of mortgage rate interventions to accelerate the recovery. The model features tenure choice between owning and renting, rich portfolio choice, long-term defaultable mortgages, and endogenously illiquid housing from search frictions. The equilibrium analysis and empirical evidence suggest that the deterioration in house prices and liquidity, transmitted to consumption via balance sheets that vary in composition and depth, is central to explaining the observed aggregate and cross-sectional patterns.Citation
Garriga, Carlos, and Aaron Hedlund. 2020. "Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession." American Economic Review, 110 (6): 1603–34. DOI: 10.1257/aer.20170772Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- R31 Housing Supply and Markets