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dc.contributor.authorBørsum, Øysteinen_US
dc.date.accessioned2011-07-01T08:42:52Z-
dc.date.available2011-07-01T08:42:52Z-
dc.date.issued2010en_US
dc.identifier.urihttp://hdl.handle.net/10419/47301-
dc.description.abstractThis paper analyses the default option typical to American mortgages. Households borrow to buy durable housing, but future house prices are uncertain, and households find it dvantageous to default on their debt if house prices fall sufficiently. A key assumption of the model is that households are relegated to the rental market upon default, and that there is a small pecuniary inefficiency ('iceberg cost') in renting. This leads defaulters to substitute consumption of other goods for housing; that is, the demand for housing falls upon default. Consequently, when some households default, aggregate demand for housing is reduced, hence house prices fall more, possibly inciting other households to default. This complementarity is a source of multiple equilibria, and a price externality. Using a specific case for which an analytical solution can be derived, I show that contagion is possible: it may be that the default of a minority (interpretable as sub-prime borrowers) spreads to a majority (interpretable as prime borrowers).en_US
dc.language.isoengen_US
dc.publisherDep. of Economics, Univ. of Oslo Osloen_US
dc.relation.ispartofseriesMemorandum // Department of Economics, University of Oslo 2010,10en_US
dc.subject.jelE21en_US
dc.subject.jelG11en_US
dc.subject.jelR21en_US
dc.subject.ddc330en_US
dc.subject.keywordHousing demanden_US
dc.subject.keywordmortgage marketen_US
dc.subject.keyworddefault risken_US
dc.subject.keywordmultiple equilibriaen_US
dc.subject.keywordcontagionen_US
dc.subject.stwImmobilienmarkten_US
dc.subject.stwNachfrageen_US
dc.subject.stwHypotheken_US
dc.subject.stwNotleidende Krediteen_US
dc.subject.stwZahlungsunfähigkeiten_US
dc.subject.stwAnsteckungseffekten_US
dc.subject.stwGleichgewichten_US
dc.subject.stwTheorieen_US
dc.titleContagious mortgage defaulten_US
dc.typeWorking Paperen_US
dc.identifier.ppn63237280Xen_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Memorandum, Department of Economics, University of Oslo

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