European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Borrower heterogeneity within a risky mortgage-lending market

Maria Teresa Punzi () and Katrin Rabitsch ()
Additional contact information
Maria Teresa Punzi: Department of Economics, Vienna University of Economics and Business
Katrin Rabitsch: Department of Economics, Vienna University of Economics and Business

Abstract: We propose a model of a risky mortgage-lending market in which we take explicit account of heterogeneity in household borrowing conditions, by introducing two borrower types: one with a low loan-to-value (LTV) ratio, one with a high LTV ratio, calibrated to U.S. data. We use such framework to study a deleveraging shock, modeled as an increase in housing investment risk, that falls more strongly on, and produces a larger contraction in credit for high-LTV type borrowers, as in the data. We find that this deleveraging experience produces significant aggregate effects on output and consumption, and that the contractionary effects are orders of magnitudes higher in a model version that takes account of borrower heterogeneity, compared to a more standard model version with a representative borrower.

Keywords: Borrowing Constraints, Loan-to-Value ratio, Heterogeneity, Financial Amplification

JEL-codes: E23; E32; E44 February 2017

Note: PDF Document

Full text files

wp241.pdf PDF-file 

Download statistics

Report problems with accessing this service to Sune Karlsson ().

This page generated on 2018-02-15 23:08:29.