Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174459
Authors: 
Lambertini, Luisa
Victoria, Nuguer
Uysal, Pinar
Year of Publication: 
2017
Series/Report no.: 
Working Papers 2017-06
Abstract: 
This paper models the housing sector, mortgages and endogenous default in a DSGE setting with nominal and real rigidities. We use data for the period 1981-2006 to estimate our model using Bayesian techniques. We analyze how an increase in risk in the mortgage market raises the default rate and spreads to the rest of the economy, creating a recession. In our model two shocks are well suited to replicate the subprime crisis and the Great Recession: the mortgage risk shock and the housing demand shock. Next we use our estimated model to evaluate a policy that reduces the principal of underwater mortgages. This policy is successful in stabilizing the mortgage market and makes all agents better off.
Subjects: 
Housing
Mortgage Default
DSGE model
Bayesian Estimation
JEL: 
G01
E44
G21
C11
Document Type: 
Working Paper
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