Abstract

http://ssrn.com/abstract=348740
 
 

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The Financial Accelerator: Evidence from International Housing Markets


Heitor Almeida


University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Crocker H. Liu


Arizona State University

Murillo Campello


Cornell University; National Bureau of Economic Research (NBER)

October 18, 2005

AFA 2007 Chicago Meetings Paper

Abstract:     
This paper shows novel evidence on the mechanism through which financial constraints amplify fluctuations in asset prices and credit. It does so using contractual features of housing finance. Among agents whose housing demand is constrained by the availability of collateral, those who can borrow against a larger fraction of their housing value (achieve a higher loan-to-value, or LTV, ratio) have more procyclical debt capacity. This procyclicality underlies the financial accelerator mechanism described by Stein (1995) and Bernanke et al. (1996). Our study uses international variation in maximum LTV ratios over three decades to test whether (a) housing prices and (b) demand for new mortgage borrowings are more sensitive to income shocks in countries where households can achieve higher LTV ratios. The results we obtain are consistent with the dynamics of a collateral-based financial accelerator in housing markets.

Number of Pages in PDF File: 32

Keywords: financial accelerator, housing prices, collateral constraint, income constraint, credit multiplier

JEL Classification: E44, E32, G15, G21, R21, R31

working papers series


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Date posted: March 18, 2006  

Suggested Citation

Almeida, Heitor and Liu, Crocker H. and Campello, Murillo, The Financial Accelerator: Evidence from International Housing Markets (October 18, 2005). AFA 2007 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=348740 or http://dx.doi.org/10.2139/ssrn.348740

Contact Information

Heitor Almeida (Contact Author)
University of Illinois at Urbana-Champaign ( email )
515 East Gregory Drive
4037 BIF
Champaign, IL 61820
United States
217-3332704 (Phone)
HOME PAGE: http://www.business.illinois.edu/FacultyProfile/faculty_profile.aspx?ID=11357
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Crocker H. Liu
Arizona State University ( email )
W.P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-3259 (Phone)
480-965-8539 (Fax)
HOME PAGE: http://www.public.asu.edu/~chliu1
Murillo Campello
Cornell University ( email )
114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States
HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
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