Housing and the Macroeconomy: The Role of Implicit Guarantees for Government-Sponsored Enterprises

FRB of Atlanta Working Paper No. 2005-15

27 Pages Posted: 2 Oct 2005

See all articles by Karsten Jeske

Karsten Jeske

Mellon Capital Management - Research

Dirk Krueger

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

Date Written: August 2005

Abstract

This paper studies the macroeconomic effects of implicit government guarantees of the obligations of government-sponsored enterprises. We construct a model with competitive housing and mortgage markets in which the government provides banks with insurance against aggregate shocks to mortgage default risk. We use this model to evaluate aggregate and distributional impacts of this government subsidy of owner-occupied housing. Preliminary findings indicate that the subsidy leads to higher equilibrium housing investment, higher mortgage default rates, and lower welfare. The welfare effects of this policy vary substantially across members of the population with different economic characteristics.

Keywords: Housing, mortgage market, default risk

JEL Classification: E21, G11, R21

Suggested Citation

Jeske, Karsten and Krueger, Dirk, Housing and the Macroeconomy: The Role of Implicit Guarantees for Government-Sponsored Enterprises (August 2005). FRB of Atlanta Working Paper No. 2005-15, Available at SSRN: https://ssrn.com/abstract=811004 or http://dx.doi.org/10.2139/ssrn.811004

Karsten Jeske (Contact Author)

Mellon Capital Management - Research ( email )

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Dirk Krueger

University of Pennsylvania - Department of Economics ( email )

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HOME PAGE: http://www.econ.upenn.edu/~dkrueger/

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Centre for Economic Policy Research (CEPR)

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