Borrower heterogeneity within a risky mortgage-lending market

Arbeitspapier

We propose a model of a risky mortgage-lending market in which we take explicit account of heterogeneity in household borrowing conditions, by introducing two borrower types: one with a low loan-to-value (LTV) ratio, one with a high LTV ratio, calibrated to U.S. data. We use such framework to study a deleveraging shock, modeled as an increase in housing investment risk, that falls more strongly on, and produces a larger contraction in credit for high-LTV type borrowers, as in the data. We find that this deleveraging experience produces significant aggregate effects on output and consumption, and that the contractionary effects are orders of magnitudes higher in a model version that takes account of borrower heterogeneity, compared to a more standard model version with a representative borrower.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: FinMaP-Working Paper ; No. 67

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Production ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy
• Subject: Borrowing Constraints ; Loan-to-Value ratio ; Heterogeneity ; Financial Amplification

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Punzi, Maria Teresa ; Rabitsch, Katrin
• Event: Veröffentlichung
• (who): Kiel University, FinMaP - Financial Distortions and Macroeconomic Performance
• (where): Kiel
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/148066
• Last update: 10.03.2025, 11:45 AM CET