Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148066
Authors: 
Punzi, Maria Teresa
Rabitsch, Katrin
Year of Publication: 
2016
Series/Report no.: 
FinMaP-Working Paper 67
Abstract: 
We propose a model of a risky mortgage-lending market in which we take explicit account of heterogeneity in household borrowing conditions, by introducing two borrower types: one with a low loan-to-value (LTV) ratio, one with a high LTV ratio, calibrated to U.S. data. We use such framework to study a deleveraging shock, modeled as an increase in housing investment risk, that falls more strongly on, and produces a larger contraction in credit for high-LTV type borrowers, as in the data. We find that this deleveraging experience produces significant aggregate effects on output and consumption, and that the contractionary effects are orders of magnitudes higher in a model version that takes account of borrower heterogeneity, compared to a more standard model version with a representative borrower.
Subjects: 
Borrowing Constraints
Loan-to-Value ratio
Heterogeneity
Financial Amplification
JEL: 
E23
E32
E44
Document Type: 
Working Paper

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