Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession

Carlos Garriga () and Aaron Hedlund

American Economic Review, 2020, vol. 110, issue 6, 1603-34

Abstract: Using a quantitative heterogeneous agents macro-housing model and detailed microdata, this paper studies the drivers of the 2006–2011 housing bust, its spillovers to consumption and the credit market, and the ability of mortgage rate interventions to accelerate the recovery. The model features tenure choice between owning and renting, rich portfolio choice, long-term defaultable mortgages, and endogenously illiquid housing from search frictions. The equilibrium analysis and empirical evidence suggest that the deterioration in house prices and liquidity, transmitted to consumption via balance sheets that vary in composition and depth, is central to explaining the observed aggregate and cross-sectional patterns.

JEL-codes: E23 E32 E44 G21 R31 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (61)

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Related works:
Working Paper: Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession (2017)
Working Paper: Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession (2016)
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DOI: 10.1257/aer.20170772

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