Housing and the macroeconomy
Subtitle: the role of bailout guarantees for government sponsored enterprises
By: Karsten Jeske, Dirk Krueger, Kurt Mitman
Contributors: Krueger, Dirk; Mitman, Kurt E.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17537; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17537.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "This paper evaluates the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market.  In order to do so we construct a model with heterogeneous, infinitely lived households and competitive housing and mortgage markets.  Households have the option to default on their mortgages, with the consequence of having their homes foreclosed.  We model the bailout guarantee as a government provided and tax-financed mortgage interest rate subsidy.  We find that eliminating this subsidy leads to substantially lower equilibrium mortgage origination and increases aggregate welfare, but has little effect on foreclosure rates and housing investment.  The interest rate subsidy is a regressive policy: eliminating it benefits low-income and low-asset households who did not own homes or had small mortgages, while lowering the welfare of high-income, high-asset households"--National Bureau of Economic Research web site.
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