Slow Household Deleveraging

2020 ◽  
Vol 18 (6) ◽  
pp. 2755-2775
Author(s):  
Veronica Guerrieri ◽  
Guido Lorenzoni ◽  
Marta Prato
Keyword(s):  
Partial Equilibrium ◽  
Precautionary Savings ◽  
Housing Wealth ◽  
Mortgage Debt ◽  
Aggregate Consumption ◽  
Consumption Decisions ◽  
Home Values ◽  
Consumption Demand ◽  
Equilibrium Effect

Abstract We use a model of precautionary savings with housing and mortgages to study the effects of a deleveraging shock on consumer spending. We focus on the deleveraging caused by a contraction in home values, and compute numerically the partial-equilibrium effect of the shock. Our simulations show that household deleveraging is associated with a long and protracted weakness in consumption. These effects appear even if we assume, realistically, that housing wealth is illiquid and mortgage debt is long term. We show that housing wealth matters for consumption decisions due to an insurance force: consumers know they can sell their house if they get hit by sufficiently negative shocks in the future. We also show that our slow deleveraging mechanism is amplified when incomes are affected by a weak aggregate consumption demand through general-equilibrium effects.

scholarly journals Housing Wealth or Collateral: How Home Value Shocks Drive Home Equity Extraction and Spending

2020 ◽  
Author(s):  
Henrik Yde Andersen ◽  
Søren Leth-Petersen
Keyword(s):  
Interest Rates ◽  
Mortgage Market ◽  
Housing Wealth ◽  
Home Equity ◽  
Fixed Rate ◽  
Mortgage Loans ◽  
Mortgage Debt ◽  
Individual Level ◽  
Home Value ◽  
Home Values

Abstract We examine whether unanticipated changes in home values drive spending and mortgage-based equity extraction. To do this, we use longitudinal survey data with subjective information about current and expected future home values to calculate unanticipated home value changes. We link this information at the individual level to high quality administrative records containing information about mortgage borrowing as well as savings in various financial instruments. We find that the marginal propensity to increase mortgage debt is 3%–5% of unanticipated home value gains. We find no adjustment to other components of the portfolio, and we find that mortgage extraction leads to an increase in spending. The effect is driven by young households with high loan-to-value ratios, which is consistent with the effect being driven by collateral constraints. Further, we find that the effect is driven by home owners who actively take out a new mortgage. The price effect is magnified among fixed rate mortgage (FRM) borrowers who have an incentive to refinance their loans to lock in a lower market rate. These results point to the importance of the mortgage market in transforming price increases into spending and suggest that monetary policy can play an important role in transforming housing wealth gains into spending by affecting interest rates on mortgage loans.

scholarly journals The Case Against Patents

2013 ◽  
Vol 27 (1) ◽  
pp. 3-22 ◽  
Author(s):  
Michele Boldrin ◽  
David K Levine
Keyword(s):  
Political Economy ◽  
General Equilibrium ◽  
Empirical Evidence ◽  
Policy Change ◽  
Rent Seeking ◽  
Partial Equilibrium ◽  
The Political ◽  
General Equilibrium Effect ◽  
Equilibrium Effect ◽  
Over Time

The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless productivity is identified with the number of patents awarded—which, as evidence shows, has no correlation with measured productivity. Both theory and evidence suggest that while patents can have a partial equilibrium effect of improving incentives to invent, the general equilibrium effect on innovation can be negative. A properly designed patent system might serve to increase innovation at a certain time and place. Unfortunately, the political economy of government-operated patent systems indicates that such systems are susceptible to pressures that cause the ill effects of patents to grow over time. Our preferred policy solution is to abolish patents entirely and to find other legislative instruments, less open to lobbying and rent seeking, to foster innovation when there is clear evidence that laissez-faire undersupplies it. However, if that policy change seems too large to swallow, we discuss in the conclusion a set of partial reforms that could be implemented

Working from home and long-term housing wealth inequality in large cities of advanced economies

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Reza Tajaddini ◽  
Hassan F. Gholipour ◽  
Amir Arjomandi
Keyword(s):  
Wealth Inequality ◽  
Developed Countries ◽  
Housing Demand ◽  
Working Environment ◽  
Housing Wealth ◽  
Content Type ◽  
Large Cities ◽  
Working From Home ◽  
Advanced Economies

Purpose The purpose of this study is to explain the potential long-term impacts of working from home on housing wealth inequality in large cities of advanced economies. Design/methodology/approach This study is descriptive research and It supports the arguments by providing some emerging evidence from property markets in developed countries. Findings The authors argue that due to the unique nature of the COVID-19 crisis, it will have a different and long-term impact on housing wealth inequality. Changes in the working arrangements of many professionals will change the housing demand dynamic across different suburbs and may lead to a reduction of the housing wealth gap in the long term. In this paper, the authors propose five mechanisms that may impact housing wealth inequality. Research limitations/implications Long-term data is required to test the proposed conceptual model in this study and the effect of the COVID-19 pandemic on housing wealth across and within suburbs of large cities. Practical implications Policymakers and regulators may benefit from the discussions and suggestions provided in this study and consider the proposed avenues on how new changes in the working environment (remote working) may result in a reduction of housing wealth inequality. Originality/value This study presents a new perspective about the potential long-term impacts of working from home that is posed by the COVID-19 pandemic on housing wealth inequality in large cities of developed economies.

Treasurer's Report 2008: Another Year of Growth and Innovation in APSA's Financial Operations

2008 ◽  
Vol 41 (04) ◽  
pp. 937-942
Author(s):  
Janet M. Box-Steffensmeier ◽  
Robin Smith
Keyword(s):  
Real Estate ◽  
Annual Report ◽  
Fiscal Year ◽  
Resource Base ◽  
Mortgage Debt ◽  
Operating Income ◽  
Financial Condition ◽  
Operating Budget ◽  
New Directions

I am pleased to report that our Association's financial condition remains healthy, providing a resource base sufficient to continue current operations, while expanding the Association's activities in new directions as needed. Since our last annual report, we have seen our endowment and real estate holdings grow in value to about $32.1 million (June 2007), against which we are carrying just $1.6 million in mortgage debt. For the fiscal year that ended June 30, 2008, we estimate that total operating income ($4.8 million) was slightly above budget, with expenditures below. Our broad membership base continues to be the most important reason for our healthy financial condition, while the annual meeting and APSA publications also provide substantial income. In short, we are in the enviable position of enjoying stable membership, while holding substantial income- and growth-producing assets with minimal long-term liabilities. All of these factors combine to produce an operating budget that hews closely to anticipated income and expenses, year after year.

scholarly journals AN ESSAY ON CONSUMPTION HYPOTHESES: EVIDENCE FROM PAKISTAN

2020 ◽  
Vol 3 (01) ◽  
pp. 23-32
Author(s):  
Khalid Khan ◽  
Marguerite Wotto ◽  
Saima Liaqat
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Unemployment Rate ◽  
Private Consumption ◽  
Short Term ◽  
Aggregate Consumption ◽  
Short Run ◽  
Consumption Decision ◽  
Yearly Data

In this study, the ARDL method is used to assess short-term and longterm relationships between private consumption, labor income, interest rate, wealth, and unemployment rate. The real private consumption model for Pakistan has been estimated by applying yearly data from 1990 to 2016. According to long-term estimates, income and wealth determine the actual national consumption. Nevertheless, the short run national private consumption is determined by current incomes, wealth, real interest rates, and the unemployment rate. Findings of this study reveal significant impact of all the observed determinants of consumption function i.e. real disposable income, wealth, real interest rate, and unemployment rate on aggregate consumption. Whereas it is noteworthy that the coefficient for wealth was minor but significant, depicting slight impact of wealth on consumption decision. These results support validity of AIH for Pakistan.

Modeling Long-term Commodities: the Development of a Simulation Model for the South African Wine Industry within a Partial Equilibrium Framework

2009 ◽  
Vol 4 (2) ◽  
pp. 201-218
Author(s):  
Sanri Reynolds ◽  
Ferdinand Meyer ◽  
Michela Cutts ◽  
Nick Vink
Keyword(s):  
South African ◽  
Jel Classification ◽  
Wine Industry ◽  
Partial Equilibrium ◽  
Model Structure ◽  
The South ◽  
Demand And Supply ◽  
Long Time ◽  
Made In

AbstractEconometric demand and supply models of agricultural commodities and crops have been around for a long time with extensive research and adaptations being made in the grain and livestock sectors. This much attention has, however, not been afforded to long term commodities. This paper presents a partial equilibrium framework for modeling long term commodities using the South African wine industry as an example. The model structure is presented and two different approaches to closing the model are compared. The usefulness of the model is tested in the form of baseline projections and the analysis of a typical “what if” question. (JEL Classification: D5, L66, Q11)

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