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dc.contributor.authorBørsum, Øysteinen
dc.date.accessioned2011-07-01T08:42:52Z-
dc.date.available2011-07-01T08:42:52Z-
dc.date.issued2010-
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
dc.language.isoengen
dc.publisher|aUniversity of Oslo, Department of Economics |cOsloen
dc.relation.ispartofseries|aMemorandum |x2010,10en
dc.subject.jelE21en
dc.subject.jelG11en
dc.subject.jelR21en
dc.subject.ddc330en
dc.subject.keywordHousing demanden
dc.subject.keywordmortgage marketen
dc.subject.keyworddefault risken
dc.subject.keywordmultiple equilibriaen
dc.subject.keywordcontagionen
dc.subject.stwImmobilienmarkten
dc.subject.stwNachfrageen
dc.subject.stwHypotheken
dc.subject.stwNotleidende Krediteen
dc.subject.stwZahlungsunfähigkeiten
dc.subject.stwAnsteckungseffekten
dc.subject.stwGleichgewichten
dc.subject.stwTheorieen
dc.titleContagious mortgage default-
dc.typeWorking Paperen
dc.identifier.ppn63237280Xen
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen

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