House Price Growth, Collateral Constraints and the Accumulation of Homeowner Debt in the United States

Disney, Richard; Gathergood, John

doi:10.2202/1935-1690.2229

Cited by 29 publications

(23 citation statements)

References 12 publications

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“…of gross housing wealth for aggregate consumption. This 'collateral' view of housing is consistent with mounting micro evidence that consumption is much more sensitive to housing wealth among families who would likely be credit constrained absent borrowing against their housing equity (Browning et al, 2008;Disney and Gathergood, 2011;Hurst and Stafford, 2004;and Mian and Sufi, 2011a, b).…”

Section: A Credit-and Financial Innovation-augmented Consumption Framsupporting

confidence: 69%

Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Duca¹,

Muellbauer²

2013

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After the global financial crisis, there is greater awareness of the need to understand the interactions between the financial sector and the real economy and hence the potential for financial instability. Data from the financial flow of funds, previously relatively neglected, are now seen as crucial to the data monitoring carried out by central banks. This paper revisits earlier efforts to understand financial-real linkages, such those of Tobin and the Yale School, and proposes a modeling framework for analysing the household flow of funds jointly with consumption. The consumption function incorporates household income, portfolios of assets and debt held at the end of the previous period, credit availability, and asset prices and interest rates. In a general equilibrium setting, these all have to be endogenised and since households make consumption and housing purchase decisions jointly with portfolio decisions, there is much to be gained in modeling a household sub-system of equations. Major evolutionary structural change -namely the evolving credit architecture facing households -is handled by our 'Latent Interactive Variable Equation System'. A by-product is improved understanding of the secular decline in US saving rate, as well as of the household financial accelerator. Moreover, the models discussed in this paper offer new ways of interpreting data on credit, money and asset prices, which are crucial for central banks.JEL Codes: B22, E21, E44, E51, G11.Key Words: Finance and the real economy, financial crisis, consumption, credit constraints, household portfolios. Non-technical summaryAfter the global financial crisis, there is general awareness, see the report on the first two years of the macro-prudential research network, ECB (2012), of how standard macroeconomics as practiced up to 2008 had failed to understand the interactions between the financial sector and the real economy and so failed to grasp the potential for financial instability. Data from the financial flow of funds, neglected previously, are now seen as crucial to the data monitoring carried out by central banks. This paper revisits earlier efforts to understand financial-real linkages, such as those of the Yale tradition, as the back-ground to new approaches to model linkages between the flow of funds and the real economy. These new approaches throw fresh light on how to interpret data on money and credit. Tobin and Brainard (1963) had anticipated the bank lending channel of monetary transmission as later highlighted by Bernanke and Blinder (1988) and Bernanke and Gertler (1995). Brainard and Tobin's 1968 stylised paper on pitfalls in financial modeling included three sectors (governments, private sector and banks), a set of seven financial assets and focused on investment (rather than consumption) as the key interaction between the financial sector and the real economy. In the 1970s, the Yale school introduced consumption with a systems approach to household flow-of-funds analysis, see Backus and Purvis (1980). However, in the ...

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Section: A Credit-and Financial Innovation-augmented Consumption Framsupporting

confidence: 69%

Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Duca¹,

Muellbauer²

2013

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“…As Bernanke and Gertler (1995) note, credit demand has a countercyclical component as households try to smooth through cyclical fluctuations in income (see also Hurst and Stafford 2004). In addition, home prices rose significantly in the late 1990s and early 2000s, which is likely to have contributed to equity extraction as found in previous work Sufi 2011, Disney andGathergood 2011). In contrast, the sharp downturn in home prices since 2007 may help explain the lack of equity extraction in recent years despite another episode of policy easing and low mortgage rates.…”

Section: Introductionmentioning

confidence: 65%

Interest Rates and Equity Extraction During the Housing Boom

Bhutta

Keys

2013

SSRN Journal

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“…Relationships between home values and household debt have been found in UK data (Disney and Gathergood, 2011;Gathergood, 2012) and peer-to-peer lending data in the US (Ramcharan and Crowe, 2013). Connections between home equity and aggregate consumption have been found in Canadian data (Kartashova and Tomlin, 2013).…”

Section: Literaturementioning

confidence: 94%

Household Debt and Local Public Finances

Whitaker¹,

Cheung²,

Cunningham³

2014

Working Paper (Federal Reserve Bank of Cleveland)

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In the wake of the Great Recession, steep declines in state and local government expenditures and employment were a large and persistent source of economic weakness. The business cycle was also characterized by large increases and decreases in household debt. We estimate the extent to which variation in local government revenues and expenditures can be explained by variation in the expansion of household debt from 2002 to 2007, and the contraction thereafter. We merge individual credit balance data with municipal fi nancial data from the Census of Governments. Using Census block indicators, we are able to place approximately 12 million credit bureau records into over 6,000 cities and 4,500 school districts. Our results indicate that a one percent additional increase in mortgage debt caused a 0.15 percent increase in local governments' own revenue and a 0.17 to 0.21 percent increase in expenditures. These relationships were evident during the expansion and contraction of mortgage debt. We also fi nd evidence linking nonmortgage debt to municipal fi nances.

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House Price Growth, Collateral Constraints and the Accumulation of Homeowner Debt in the United States

Cited by 29 publications

References 12 publications

Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models

Interest Rates and Equity Extraction During the Housing Boom

Household Debt and Local Public Finances

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