Search Results
Working Paper
A model of price swings in the housing market
In this paper we use a standard neoclassical model supplemented by some frictions to understand large price swings in the housing market. We construct a two good general equilibrium model in which housing is a composite good produced using structures and land. We revisit the connection between changes in interest rates, credit conditions as measured by maximum loan-to-value ratios and expectations in influencing housing prices in a setting in which the stock of housing can be used as collateral for borrowing and credit markets are segmented. We find that changes in interest rates and credit ...
House Hunting in a Period of Social Distancing
Lower housing demand due to quarantine orders, slowing price growth and mortgage originations, and a historically high housing supply are all hitting the economy at the same time.
Working Paper
Indirect taxation and the welfare effects of altruism on the optimal fiscal policy
This paper analyzes the welfare effects of altruism on the optimal fiscal policy. The existence of positive bequests links present and future generations in the economy. We show that these altruistic links provide a new role for indirect taxation (consumption and estate taxes) with important welfare implications. We use three different altruistic approaches (warm-glow, dynastic, and family) to illustrate how the presence of bequests in the budget constraint of the donee gives the government the ability to use indirect taxation to mimic lump-sum taxation and to implement the first-best outcome ...
Journal Article
Demographics, redistribution, and optimal inflation
The authors study the interaction among population demographics, the desire for intergenerational redistribution of resources in the economy, and the optimal inflation rate in a deterministic life cycle economy with capital. Young cohorts initially have no assets and wages are the main source of income; these cohorts prefer relatively low real interest rates, relatively high wages, and relatively high rates of inflation. Older cohorts work less and prefer higher rates of return from their savings, relatively low wages, and relatively low inflation. In the absence of intergenerational ...
Working Paper
Mortgages and monetary policy
Mortgages are long-term nominal loans. Under incomplete asset markets, monetary policy is shown to affect housing investment and the economy through the cost of new mortgage borrowing and the value of payments on outstanding debt. These channels, distinct from traditional transmission of monetary policy, are evaluated within a general equilibrium model. Persistent monetary policy shocks, resembling the level factor in the nominal yield curve, have larger effects than transitory shocks, manifesting themselves as long-short spread. The transmission is stronger under adjustable- than fixed-rate ...
Working Paper
Generational policy and the macroeconomic measurement of tax incidence
In this paper we show that the generational accounting framework used in macroeconomics to measure tax incidence can, in some cases, yield inaccurate measurements of the tax burden across age cohorts. This result is very important for policy evaluation, because it shows that the selection of tax policies designed to change generational imbalances could be misleading. We illustrate this problem in the context of a Social Security reform where we show how fiscal policy can affect the intergenerational gap across cohorts without impacting the distribution of welfare. We provide a more accurate ...
Journal Article
Lending standards in mortgage markets
While the data seem to suggest that lenders did the right thing by tightening standards and increasing denials...the ongoing financial crisis suggests that they did not tighten them enough.
Working Paper
Crises in the Housing Market: Causes, Consequences, and Policy Lessons
The global financial crisis of the past decade has shaken the research and policy worlds out of their belief that housing markets are mostly benign and immaterial for understanding economic cycles. Instead, a growing consensus recognizes the central role that housing plays in shaping economic activity, particularly during large boom and bust episodes. This article discusses the latest research regarding the causes, consequences, and policy implications of housing crises with a broad focus that includes empirical and structural analysis, insights from the 2000's experience in the United ...
Journal Article
Mortgage innovation, mortgage choice, and housing decisions
This paper examines some of the more recent mortgage products now available to borrowers. The authors describe how these products differ across important characteristics, such as the down payment requirement, repayment structure, and amortization schedule. The paper also presents a model with the potential to analyze the implications for various mortgage contracts for individual households, as well as to address many current housing market issues. In this paper, the authors use the model to examine the implications of alternative mortgages for homeownership. The authors use the model to show ...
Journal Article
Intertemporal discounting and policy selection
The choice of the intertemporal discount rate affects the measurement of the tax burden of different age cohorts. Small changes in the discount rate affect not only the magnitude of the measured changes, but also the ranking of policies using that metric. The authors illustrate this problem in the context of neutral Social Security reforms. By construction, these policies do not change allocations; hence, they also do not change welfare. However, depending on the choice of the discount rate, one could reach different (and possibly opposite) conclusions regarding the desirability of such ...