The role of liquidity constraints in the response of monetary policy to house prices

Kajuth, Florian

doi:10.1016/j.jfs.2010.01.002

Cited by 8 publications

(3 citation statements)

References 37 publications

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“…The response of monetary policy to credit spreads is discussed by Curdia and Woodford (2010). The implications of the presence of liquidity constraints to the understanding of monetary policy are discussed also by Kajuth (2008) and Albonico and Rossi (2011). 1 The structure of the paper is as follows.…”

Section: Introductionmentioning

confidence: 99%

Long-Term Financial Contracts in an Endowment Economy of the Eggertsson-Krugman Model

Bar-Ilan¹,

Peled²

2017

JAEF

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Abstract. This paper extends the endowment economy model of Eggertsson and Krugman (2012) by allowing for various durations of financial contracts. This extension might change the way that monetary policy affects the economy. Lower nominal interest rate appreciates the real value of outstanding long term debt and forces indebted consumers to cut their consumption. This contractionary effect partially offsets the standard expansionary effect of low interest rates. Longer financial contracts make this unconventional offsetting larger. The expansionary effect of commitment to future inflation, on the other hand, does not depend on the length of financial contracts.Keywords: Deleveraging, debt deflation, monetary policy. IntroductionHousehold debt plays a significant role in the studies of the current Great Recession. According to Hall (2011), tightening of household borrowing constraint forced borrowers to reduce their consumption drastically and generated a deleveraging shock that pushed the economy toward a recession. Ueda (2012) argues that a major lesson from the recent experience of the U.S. and Japan is that deleveraging can generate significant negative macroeconomic externalities. Changes in the real value of outstanding debt are crucial in understanding this channel. Falling prices increase the real burden of nominal debt, leading to a vicious circle identified by Fisher (1933) in the context of the Great Depression. The current relevance of this "Fisherian" debt deflation is emphasized by Eggertsson and Krugman (2012), denoted here as EK.The focus of this paper is on unanticipated changes in nominal interest rates as another channel that affects the real value of debt. Falling interest rates raise the value of outstanding debt and force indebted consumers to deleverage and cut their consumption. In order to study this effect we extend the endowment economy part of the EK model by introducing financial contracts of various lengths: short run contracts are one period long, two period contracts, and long contracts in the form of perpetuities.When financial contracts are short, nominal interest rate impacts the economy in a standard way. Higher nominal rate, for a given real rate, implies higher expected inflation and lower price level. This is Fisherian debt deflation that raises the real value of the outstanding debt, reduces consumption of the borrower and lowers the real interest rate to increase consumption of the lender.When contracts are long, on the other hand, there is another channel by which interest rates affect the economy. This channel works in the opposite direction than the standard one as higher nominal rate depreciates the real value of outstanding debt. This allows the borrower to consume more and consequently lowers saver's consumption and raises the real interest rate. The overall effect on the economy is therefore potentially ambiguous. We show that the standard contractionary effect of higher interest rates is still dominant, but it becomes weaker as the financial contract becomes longe...

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Section: Introductionmentioning

confidence: 99%

Long-Term Financial Contracts in an Endowment Economy of the Eggertsson-Krugman Model

Bar-Ilan¹,

Peled²

2017

JAEF

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“…Konut hareketliliği, hanehalkının içsel ve dışsal değişen koşullara dayalı olarak konum, büyüklük, tür, mülkiyet durumuna (housing tenure) göre konut tüketimini düzenlediği ve konut kariyeri boyunca sürdürdüğü mekânsal bir uyum süreci olarak kavramsallaştırılmıştır (Rossi, 1955;Wolpert, 1966;Brown and Moore, 1970;Michelson, 1977). Hanehalkının içinde yaşadığı konutların, kalite/fiyat ve mülkiyet durumları açısından tanımlanan barınma durumlarının sıralaması konut kariyeri olarak nitelendirilmektedir (Clark vd, 2003;Kajuth, 2010;Estiri vd. 2013;Shields vd., 2009;Özyıl-dırım vd.…”

Section: Introductionunclassified

Factors Affecting the Household Housing Mobility: The Case of Ankara

Eceral¹

2017

Planning

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Household housing mobility, which reflects social, economic, and spatial aspects of housing, is one of the most important determinants of housing demand. Household mobility is related to factors such as life course/life cycle, housing profile, and the preferences/satisfaction of an individual or household. The aim of this study is to examine factors affecting household mobility in the metropolitan of Ankara. Data acquired from a 534-unit household survey in neighborhoods of Ankara's metropolitan districts that were selected to represent the varied socioeconomic structure of the city were evaluated with descriptive statistics and factor analysis. According to the results of factor analysis, the economic structure of households, life course variables, housing profile, and location were the factors affecting household mobility in Ankara. Our results indicated that while rental housing stands out through the household mobility phases, the time span of living in a house decreases through mobility phases. Life course effects influence household mobility rather than life cycle effects and preferences/ satisfaction factors as mobility phases proceed.

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“…The market segments for owner-occupied housing can thus be described as a step-wise relationship between a starter, an intermediate and a family home segment (Ortalo-Magne' and Rady, 2006). The ability to trade up the ladder is often related to the equity gains from the existing housing stock (Kajuth, 2010).…”

Section: Introductionmentioning

confidence: 99%

Equity induced up-trading and the housing market structure

Borgersen

2014

International Journal of Housing Markets and Analysis

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Equity induced up-trading and the housing market structure: Implications for price-toincome (PTI) and macroprudential interventions Trond-Arne Borgersen Article information:To cite this document: Trond-Arne Borgersen , (2014),"Equity induced up-trading and the housing market structure", International Abstract Purpose -The purpose of this paper is to highlight the importance of home equity and the interplay between market segments for housing market developments. The intention is to show that it is not only the aggregate equity gain but also the distribution of equity gains between segments that matter for how shocks to income impact house prices. Design/methodology/approach -The paper sets out a linear housing market model with three segments. Households trade up a housing ladder and link the three segments for owner-occupied housing. The up-trading is equity-induced. An expression for the house price index, which is related to the market segment prices both directly through the segment size and indirectly through a segment position on the housing ladder is derived. The author considers the price effects of shocks to income in four housing market regimes. Findings -The heterogeneous housing market model shows how the interplay between segments impacts housing markets. When considering shocks to income, short-run deviations in the price-to-income (PTI) ratio compared to their long-run equilibrium due to equity-induced up-trading were found. The extent of PTI overshooting is related to the intensity of equity-induced up-trading between different segments. The market structure necessary to eliminate such overshooting is contingent on the distribution of equity gains between segments. Finally, the paper shows how the price effects of macroprudential interventions might be non-negligible when indirect effects are taken into account. Originality/value -The linear housing market model with three market segments introduces a framework where the intensity of equity-induced up-trading in different market segments can be analyzed. This distributional aspect is, to the best of the author's knowledge, novel. The context-specific relation between housing market structure, equity-induced up-trading and short-run deviations in the PTI ratio provides a foundation for future research.

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The role of liquidity constraints in the response of monetary policy to house prices

Cited by 8 publications

References 37 publications

Long-Term Financial Contracts in an Endowment Economy of the Eggertsson-Krugman Model

Long-Term Financial Contracts in an Endowment Economy of the Eggertsson-Krugman Model

Factors Affecting the Household Housing Mobility: The Case of Ankara

Equity induced up-trading and the housing market structure

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