Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130644
Authors: 
Justiniano, Alejandro
Primiceri, Giorgio E.
Tambalotti, Andrea
Year of Publication: 
2016
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 766
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 of 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. Owing to their low incomes, 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.
Subjects: 
home prices
housing boom
household debt
credit supply
collateral constraints
JEL: 
E21
E44
G21
Document Type: 
Working Paper

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