winners and losers in housing markets this paper is a quantitatively oriented theoretical study into the interaction between housing prices aggregate production and household behaviour over a lifetime we develop a life cycle model of a production economy in which land and capital are used to build residential and commercial structures we find that in an economy where the share of land in the value of structures is large housing prices react more to an exogenous change in expected productivity or the world interest rate causing large redistribution effects between net buyers and net sellers of houses changing the financing constraint however has limited effects on housing prices

macroeconomic and distributional effects of mortgage guarantee programs for the poor abstract government driven mortgage guarantee programs for example loans insured through the federal housing administration the department of veterans affairs and the rural housing service aim to help financially disadvantaged households buy and own their houses this study analyzes the macroeconomic and distributional effects of these government programs we propose a quantitative model where households endogenously choose their mortgage types either with or without government guarantees households that take out mortgages with government guarantees pay an up front insurance premium while those that choose mortgages without guarantees face borrowing limits our results show that a hypothetical decline in government subsidies for mortgage guarantee programs can improve aggregate household welfare mainly due to endogenous changes in mortgage interest rates and tax burdens rather than in housing prices the welfare implications are different across households depending on their financial status

did dubious mortgage origination practices distort house prices zip codes with high concentrations of originators who misreported mortgage information experienced a 75 larger relative increase in house prices from 2003 to 2006 and a 90 larger relative decrease from 2007 to 2012 compared with other zip codes several causality tests show that high fractions of dubious originators in a zip code lead to large price distortions originators with high misreporting gave credit to borrowers with high ex ante risk yet further understated the borrowers true risk overall excess credit facilitated through dubious origination practices explain much of the regional variation in house prices over a decade

credit constraints house prices and the impact of life cycle dynamics abstract how does the life cycle impact house price dynamics this paper investigates how equilibrium house prices respond to a tightening in credit constraints under two different but similarly calibrated models one an infinite horizon setting and the other a life cycle environment the main conclusion is that house price dynamics are magnified by the presence of life cycle features two primary explanations stand out the distinction between stocks and flows of mortgage debt in the cross section and the importance of gross housing tenure flows i e churn

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

housing demand during the boom the role of expectations and credit constraints i use a life cycle model of housing demand to infer expectations about house prices and home equity requirements for the housing boom of the 2000s from observed household choices expectations and credit constraints are separately identified from the intensive and extensive margins of housing demand the main results are that 1 expected price growth was close to average long run growth 2 home equity requirements were lax initially but tightened after the bust and 3 subjective uncertainty about future price growth was large given the option to default on mortgage debt greater price uncertainty leads to higher optimal household leverage

mortgage default during the u s mortgage crisis this paper asks which theories of mortgage default are quantitatively consistent with observations in the united states during 2002 2010 theoretical models are simulated for the observed time series of aggregate house prices their predictions are then compared to actual default rates on prime fixed rate mortgages an out of sample test discriminates between estimated reduced forms of the two most prominent theories the test reveals that the doubletrigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment outperforms a frictionless option theoretic default model based on this finding a structural partialequilibrium model with liquidity constraints and idiosyncratic unemployment shocks is presented to provide micro foundations for the double trigger hypothesis in this model borrowers with negative equity are more likely to default when they are unemployed and have low liquid wealth the model explains most of the observed strong rise in mortgage default rates a policy implication of the model is that subsidizing homeowners can mitigate a mortgage crisis at a lower cost than bailing out lenders

mortgage debt consumption and illiquid housing markets in the great recession using a model with housing search endogenous credit constraints and mortgage default this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross sectional consumption during the great recession left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers an endogenous decline in housing liquidity amplifies the recession by increasing foreclosures contracting credit and depressing consumption balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution low interest rate policies accelerate the recovery in housing and consumption

house prices and credit constraints making sense of the us experience most us house price models break down in the mid 2000s due to the omission of exogenous changes in mortgage credit supply associated with the sub prime mortgage boom from house price to rent ratio and inverted housing demand models previous models lack data on credit constraints facing first time home buyers incorporating a measure of credit conditions the cyclically adjusted loan to value ratio for first time buyers into house price to rent ratio models yields stable long run relationships more precisely estimated effects reasonable speeds of adjustment and improved model fits

depreciation of housing capital maintenance and house price inflation estimates from a repeat sales model abstract the rate at which physical capital depreciates is fundamental to investment in the economy nevertheless although housing capital accounts for one third of the total capital stock the rate at which housing capital depreciates has only rarely been directly estimated in part because prior studies do not control for maintenance for that same reason widely publicized measures of house price appreciation overstate the capital gain from homeownership using data from the american housing survey we examine these issues over the 1983 to 2001 period results indicate that gross of maintenance housing depreciates at roughly 2 5 percent per year while net of maintenance housing depreciates at approximately 2 percent per year moreover although the typical home appreciated at an annual real rate of roughly 0 75 percent after allowing for depreciation and maintenance the average homeowner experienced little capital gain

innovation waves self organized criticality and technological convergence abstract the purpose of this paper is to investigate the evolutionary process of imitation and innovation as a process of searching in a given neighbourhood of firms the spreading of information through neighbourhoods allows firms to acquire knowledge leading to innovation waves followed by imitation as firms attempt to glean information on best practise techniques whilst innovators are temporarily allowed to reap quasi rents the imitative band wagon effect drives the profit rate down to its normal level productivity growth lowers the prices of sectors involved in the process of technological advance causing obsolescence and creative destruction in a schumpeterian sense

the democratization of credit and the rise in consumer bankruptcies financial innovations are a common explanation for the rise in credit card debt and bankruptcies to evaluate this story we develop a simple model that incorporates two key frictions asymmetric information about borrowers risk of default and a fixed cost of developing each contract lenders offer innovations that ameliorate asymmetric information or reduce this fixed cost have large extensive margin effects via the entry of new lending contracts targeted at riskier borrowers this results in more defaults and borrowing and increased dispersion of interest rates using the survey of consumer finances and federal reserve board interest rate data we find evidence supporting these predictions specifically the dispersion of credit card interest rates nearly tripled while the new cardholders of the late 1980s and 1990s had riskier observable characteristics than existing cardholders our calculation suggest these new cardholders accounted for over 25 of the rise in bank credit card debt and delinquencies between 1989 and 1998

distributional implications of government guarantees in mortgage markets we analyze the removal of the credit risk guarantees provided by the government sponsored enterprises gses in a model with agents heterogeneous in income and house price risk we find that wealth inequality increases driven by higher mortgage spreads and housing rents housing holdings become more concentrated foreclosures fall the removal benefits high income households while hurting low and mid income households renters and highly leveraged mortgagors with conforming loans gse reform requires compensating transfers sufficiently high elasticity of rental supply or linking gse reform with the elimination of the mortgage interest deduction

mortgage risks debt literacy and financial advice a limited understanding of mortgage contracts and the risks involved may have contributed to the outbreak of the 2007 2008 financial crisis we developed a special questionnaire relating mortgage loan decisions to financial knowledge and financial advice our results demonstrate that homeowners appear to be well aware of mortgage risks large loans relative to home value are perceived as riskier as are loans with large mortgage payments relative to income and loans linked to investment vehicles homeowners with riskier mortgages indicated that they could encounter financial problems should house prices or their income decline homeowners with relatively low debt literacy are more likely to take out traditional mortgages with principal repayments over the maturity of the loan riskier mortgages are more prevalent among homeowners with a better understanding of loan contracts financially less sophisticated homeowners consulting mortgage brokers too hold riskier mortgages

the dynamo and the computer an historical perspective on the modern productivity paradox the dynamo and the computer an historical perspective on the modern productivity paradox author s paul a david source the american economic review vol 80 no 2 papers and proceedings of the hundred and second annual meeting of the american economic association may 1990 pp 355 361 published by american economic association stable url http www jstor org stable 2006600 accessed 08 12 2010 01 40

innovation and growth through local and global interaction this paper investigates the research and development activity of heterogeneous and rationally bounded firms the latter conduct this activity through in house research and by collecting information originating in other firms spillovers thus research and development activity owes both to independent searching and to interaction diffusing information we study the conditions under which this idiosyncratic effort yields effects that have either local system wise negligible impacts or cumulate to generate significant aggregate ones in the latter case global effects feed back upon the incentive to innovate and therefore on the strength of local interaction as well as on autonomous research efforts it is these dynamic forces that we model we compare cases in which significant aggregate effects do emerge with cases in which they do not and study their outcome on innovation directed investment and on long term growth

macroeconomic effects of the mortgage refinance and the home equity lines of credit abstract i examine how the mortgage refinance and the home equity lines of credit heloc impact the increase in pre crisis mortgage debt and post crisis mortgage defaults financially constrained homeowners can cash out funds through refinancing mortgages or extract home equity through heloc my quantitative exercise shows that prevalent usage of refinancing increases pre crisis mortgage debt which amplifies the post crisis foreclosure rate heloc also contributes to an increase in mortgage defaults though it negligibly impacts pre crisis mortgage debt

two extensive margins of credit and loan to value policies author s gete pedro reher michael abstract we analyze a model of mortgage markets housing tenure choice heterogeneous agents and default with closed form solutions we uncover new insights which may inspire empirical work and we ground already established insights in a series of tractable expressions then we study optimal loan to value ltv regulation and show that the choice of an ltv cap should balance the opposing forces of access to homeownership and the negative externalities associated with default homeownership affordability concerns induce procyclical elements into optimal regulation which attenuate the countercyclical regulation justified by the negative default externalities

non durable consumption and housing net worth in the great recession evidence from easily accessible data abstract in an influential paper mian rao and sufi 2013 exploit geographic variation to measure the effect of the fall in housing net worth on household expenditures during the great recession their widely cited estimates are based on proprietary house price and proprietary expenditure data and therefore not easily replicable we use alternative data on a subset of non durable goods and on house prices which are more easily accessible to replicate their study when estimating their same specification on our data we obtain values for the elasticity of expenditures to the housing net worth shock that are virtually indistinguishable from theirs however our robustness analyses with respect to alternative model specifications yield more nuanced conclusions about the separate roles of house prices and initial housing exposure leverage for the drop in expenditures moreover the estimated elasticity is consistent theoretically and quantitatively with a simple calibrated model with wealth effects where leverage and credit constraints play no role

too much investment a problem of asymmetric information this paper shows that under plausible assumptions the inability of lenders to discover all of the relevant characteristics of borrowers results in investment in excess of the socially efficient level raising the rate of interest above the free market level will restore optimality this conflicts with generally held views and is contrasted with the stiglitz weiss model it is shown that the assumptions which yield overinvestment support debt as the equilibrium method of finance however under the stiglitz weiss assumptions used to derive an underinvestment result equity is shown to be the equilibrium method of finance

phasing out the gses we develop a new model of the mortgage market where both borrowers and lenders can default risk tolerant savers act as intermediaries between risk averse depositors and impatient borrowers the government plays a crucial role by providing both mortgage guarantees and deposit insurance underpriced government mortgage guarantees lead to more and riskier mortgage originations as well as to high financial sector leverage mortgage crises occasionally turn into financial crises and government bailouts due to the fragility of the intermediaries balance sheets increasing the price of the mortgage guarantee crowds in the private sector reduces financial fragility leads to fewer but safer mortgages lowers house prices and raises mortgage and risk free interest rates due to a more robust financial sector consumption smoothing improves and aggregate welfare increases while borrowers are nearly indifferent to a world with or without mortgage guarantees savers are substantially better off while aggregate welfare increases so does wealth inequality jel g12 g15 f31

the kinked demand curve a game theoretic approach in a simple model of duopoly firms price moves are modelled as an extensive form game where firms can respond to undercutting without delay when firms are not too dissimilar kinked demand strategies enforcing an arbitrary price may be nash equilibria however these strategies are dominated and perfect equilibrium is unique at the minimum optimal common price rather than implying price rigidity kinked demand strategies are a device for ensuring compliance with a collusive price leadership

leverage and the foreclosure crisis how much of the foreclosure crisis can be explained by the large number of high leverage mortgages originated during the housing boom in our model heterogeneous households select from mortgages with different down payments and choose whether to default given income and housing shocks the use of low down payment loans is initially limited by payment to income requirements but becomes unrestricted during the boom the model approximates key housing and mortgage market facts before and after the crisis a counterfactual experiment suggests that the increased number of high leverage loans originated prior to the crisis can explain over 60 percent of the rise in foreclosure rates

houses as atms mortgage refinancing and macroeconomic uncertainty we estimate a structural model of household liquidity management in the presence of long term mortgages households face counter cyclical idiosyncratic labor income uncertainty and borrowing constraints which aect optimal choices of leverage precautionary saving in liquid assets and illiquid home equity debt repayment mortgage renancing and default taking the observed historical path of house prices aggregate

the research agenda for small business economics books reviewed in this article acs z and audretsch d b eds 1990 the economics of small firms a european challenge

joint dynamics of house prices and foreclosures this paper studies the joint transitional dynamics of the foreclosures and house prices in a standard life cycle incomplete markets model with housing and a realistic long term mortgage structure we calibrate our model to match several long term features of the u s housing market and analyze the effects of several unexpected and permanent shocks on the house price and the foreclosure rate both across the steady states and along the transition between the steady states we examine permanent unexpected shocks to the risk free interest rate the minimum down payment ratio and unemployment during the transition these shocks create large movements in house prices more importantly the foreclosure dynamics are quite significant along the transition compared to the steady state changes and there are strong feedbacks between foreclosures and house prices we assess the effects of a temporary reduction in the risk free interest rate which has moderate effects on house prices but little effect on foreclosure dynamics we also study the effects of an ex ante macroprudential policy which establishes a minimum down payment requirement at a higher threshold such a macroprudential policy helps substantially stabilize both house prices and foreclosures

should i default on my mortgage even if i can pay experimental evidence abstract we study strategic default in the laboratory i e in a controlled experiment subjects are initially endowed with a house and a mortgage we use neutral wording in the experiment and must decide at each period in which their mortgage is alive among three options making the mortgage payment selling the house or walking away from their house and defaulting on their mortgage at each point in time we can observe whether defaulters can afford to make the mortgage payment and thus directly compute the number of strategic defaulters subjects default in the right periods and quite fast learn what they should consume we find experimental support for the double trigger hypothesis individuals faced with low income and low house prices are more likely to default we observe that subjects default less than optimal and this decision is significantly affected by social norm concerns in the context of the experiment individuals under consume in the first periods of life they are cautious when indebted both introducing a 50 probability of recourse and a responsible homeowner reward are very effective in preventing default in the lab especially by individuals receiving a bad shock to income when house prices are low

to buy or not to buy consumer constraints in the housing market abstract we use a strategic household survey to study the sensitivity of intended homeownership decisions to financing constraints we find that the average stated likelihood of buying a home is strongly sensitive to the size of the required down payment which we vary exogenously across three scenarios this sensitivity is particularly high for respondents that appear more liquidity constrained based on observable characteristics including current renters or owners with low savings or low home equity for renters expectations of future rent inflation and of improvements to their personal financial situation also predict intention to buy

intergenerational redistribution in the great recession in this paper we construct a stochastic overlapping generations general equilibrium model in which households are subject to aggregate shocks that aect both wages and asset prices we use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across dierent household age groups the model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages asset price declines hurt the old who rely on asset sales to nance consumption but benet the young who purchase assets at depressed prices in our preferred calibration asset prices decline more than twice as much as wages consistent with the experience of the us economy in the great recession a model recession is approximately welfare neutral for households in the 20 29 age group but translates into a large welfare loss of around 10 percent of lifetime consumption for households aged 70 and over

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior