Arbeitspapier

Household debt and crises of confidence

We show that the size of collateralized household debt determines an economy's vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt levels this liquidity feedback effect is strong enough to give rise to multiplicity of house prices. In a dynamic setup, we conceptualize confidence as a realization of rationally entertainable belief-weightings of multiple future prices. This delivers debt-level-dependent bounds on the extent to which confidence may drive house prices and aggregate consumption.

Language: Englisch

Bibliographic citation: Series: CFS Working Paper Series ; No. 519

Classification: Wirtschaft
Macroeconomics: Consumption; Saving; Wealth
Business Fluctuations; Cycles
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡

Subject: Household debt
Consumer confidence
Collateral constraints
Multiple equilibria

Event: Geistige Schöpfung

(who): Hintermaier, Thomas
Koeniger, Winfried

Event: Veröffentlichung

(who): Goethe University Frankfurt, Center for Financial Studies (CFS)

(where): Frankfurt a. M.

(when): 2015

Handle: http://hdl.handle.net/10419/121295

URN: urn:nbn:de:hebis:30:3-386603

Last update: 10.03.2025, 11:43 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Show original at data provider

Object type

Arbeitspapier

Associated

Hintermaier, Thomas
Koeniger, Winfried
Goethe University Frankfurt, Center for Financial Studies (CFS)

Time of origin

2015

Other Objects (12)

Arbeitspapier