Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105588
Authors: 
Chadha, Jagjit S.
Corrado, Germana
Corrado, Luisa
Year of Publication: 
2013
Series/Report no.: 
School of Economics Discussion Papers 1316
Abstract: 
We decompose aggregate consumption by modelling both savers and their links to collateral constrained borrowers through a bank which prices credit risk. Savers own both firms and the commercial bank while borrowers require loans from the commercial bank to effect their consumption plans. The bank lends at a premium over the interest rate on central bank money in proportion to the riskiness of assets, the demand for loans, the asset price and the quantity of housing collateral. We show that even though house price do not represent wealth, aggregate consumption is not independent of movements in house prices. We consider the case for employing macro-prudential policy jointly with monetary and fiscal policy in order to minimise losses for a representative household.
Subjects: 
Credit constrained households
housing collateral
asset prices
bank lending
default risk
macro-prudential
fiscal and monetary policy
JEL: 
E31
E40
E51
Document Type: 
Working Paper

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