A simple model of subprime borrowers and credit growth

Arbeitspapier

The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi 2009). We present a simple model of prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Owing to their low incomes, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on disproportionately more debt than their prime counterparts, who are not subject to that constraint.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 766

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth ; Financial Markets and the Macroeconomy ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: home prices ; housing boom ; household debt ; credit supply ; collateral constraints

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Justiniano, Alejandro ; Primiceri, Giorgio E. ; Tambalotti, Andrea
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/130644
• Last update: 10.03.2025, 11:46 AM CET