Abstract

http://ssrn.com/abstract=953219
 
 

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Welfare Implications of the Transition to High Household Debt


Jeffrey R. Campbell


Federal Reserve Bank of Chicago

Zvi Hercowitz


Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER)

November 2006

FRB of Chicago Working Paper No. 2006-27

Abstract:     
Aggressive deregulation of the mortgage market in the early 1980s triggered innovations that greatly reduced the required home equity of U.S. households. This allowed households to cash-out a large part of accumulated equity, which equaled 71 percent of GDP in 1982. A borrowing surge followed: Household debt increased from 43 to 62 percent of GDP in the 1982-2000 period. What are the welfare implications of such a reform for borrowers and savers? This paper uses a calibrated general equilibrium model of lending from the wealthy to the middle class to evaluate these effects quantitatively.

Number of Pages in PDF File: 40

Keywords: Financial Reform, Mortgage Debt, Interest Rates

JEL Classification: E44, E65

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Date posted: December 22, 2006  

Suggested Citation

Campbell, Jeffrey R. and Hercowitz, Zvi, Welfare Implications of the Transition to High Household Debt (November 2006). FRB of Chicago Working Paper No. 2006-27. Available at SSRN: http://ssrn.com/abstract=953219 or http://dx.doi.org/10.2139/ssrn.953219

Contact Information

Jeffrey R. Campbell (Contact Author)
Federal Reserve Bank of Chicago ( email )
230 South LaSalle Street
Chicago, IL 60604-1413
United States
312-322-6156 (Phone)
312-322-2357 (Fax)
HOME PAGE: http://www.nber.org/~jrc
Zvi Hercowitz
Tel Aviv University - Eitan Berglas School of Economics ( email )
P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9916 (Phone)
+972 3 640 9908 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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