Household Leveraging and Deleveraging

33 Pages Posted: 6 Mar 2013

See all articles by Alejandro Justiniano

Alejandro Justiniano

Federal Reserve Bank of Chicago

Giorgio E. Primiceri

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Andrea Tambalotti

Federal Reserve Bank of New York

Multiple version iconThere are 3 versions of this paper

Date Written: March 1, 2013

Abstract

U.S. households' debt skyrocketed between 2000 and 2007, but has since been falling. This leveraging and deleveraging cycle cannot be accounted for by the liberalization and subsequent tightening of mortgage credit standards that occurred during the period. We base this conclusion on a quantitative dynamic general equilibrium model calibrated using macroeconomic aggregates and microeconomic data from the Survey of Consumer Finances. From the perspective of the model, the credit cycle is more likely due to factors that impacted house prices more directly, thus affecting the availability of credit through a collateral channel. In either case, the macroeconomic consequences of leveraging and deleveraging are relatively minor because the responses of borrowers and lenders roughly wash out in the aggregate.

Keywords: household debt, mortgages, house prices

JEL Classification: E21, E32

Suggested Citation

Justiniano, Alejandro and Primiceri, Giorgio E. and Tambalotti, Andrea, Household Leveraging and Deleveraging (March 1, 2013). FRB of New York Staff Report No. 602, Available at SSRN: https://ssrn.com/abstract=2229366 or http://dx.doi.org/10.2139/ssrn.2229366

Alejandro Justiniano

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Giorgio E. Primiceri

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

HOME PAGE: http://faculty.econ.northwestern.edu/faculty/primiceri

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andrea Tambalotti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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