Collateral Constraints and Macroeconomic Asymmetries

53 Pages Posted: 30 May 2017

See all articles by Luca Guerrieri

Luca Guerrieri

Federal Reserve Board - Trade and Financial Studies

Matteo M. Iacoviello

Federal Reserve Board - Trade and Financial Studies

Multiple version iconThere are 2 versions of this paper

Date Written: 2013

Abstract

A model with collateral constraints displays asymmetric responses to house price changes. When housing wealth is high, collateral constraints become slack, and the response of consumption and hours to shocks that move house prices is positive yet small. When housing wealth is low, collateral constraints become tight, and the response of consumption and hours to house price changes is negative and large. This finding is corroborated using evidence from national, state-level, and MSA-level data. Wealth effects computed in normal times may underestimate the response to large house price declines. Debt-relief policies may be far more effective during protracted housing slumps.

Suggested Citation

Guerrieri, Luca and Iacoviello, Matteo M., Collateral Constraints and Macroeconomic Asymmetries (2013). FRB International Finance Discussion Paper No. 1082. Available at SSRN: https://ssrn.com/abstract=2976776

Luca Guerrieri (Contact Author)

Federal Reserve Board - Trade and Financial Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2550 (Phone)

Matteo M. Iacoviello

Federal Reserve Board - Trade and Financial Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

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