Down-payment requirements and the consumption response to income shocks: Implications for fiscal and monetary policy
Foredragsholdere: Kasper Kragh-Sørensen (UiO), med Markus Karlman (NHH) og Karin Kinnerud (BI)
Dato: 23. november 2021
Når: 11:45 - 12:45
Hvor: Auditoriet, Akersveien 26
This paper investigates to what extent down-payment requirements affect the consumption response to income shocks. We first present a conceptual framework to clarify how down-payment constraints differ from traditional borrowing constraints. While an increase in a traditional borrowing constraint increases the propensity to consume out of income shocks, we show that a stricter down-payment constraint has an ambiguous effect. On the one hand, a stricter constraint causes the share of poor liquidity-constrained households to increase, as the higher barrier to buy a home discourages households from saving. On the other hand, a stricter down-payment requirement causes the share of wealthy liquidity-constrained households to decline, as households postpone their housing purchases. To quantify the aggregate consequences of the two opposing effects, we use a heterogeneous-household model with rich details of the U.S. housing and mortgage markets. We find that the average consumption response is u-shaped in the down-payment requirement, although the differences are relatively small across realistic values of the constraint. Finally, we discuss the implications of stricter down-payment constraints for fiscal and monetary policy.
Kasper Kragh-Sørensen is an Assistant Professor at the Department of Economics at the University of Oslo. His main research interest is within macroeconomics. Topics of particular interest include housing, credit, and welfare effects of tax policies. He obtained his PhD at the Institute for International Economic Studies (IIES), Stockholm University.
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