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Heterogeneous Mortgage Markets: Implications for Business Cycles and Welfare in the EMU

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  • Johannes Gareis
  • Eric Mayer

Abstract

This paper evaluates business cycle effects of asymmetric cross-country mortgage market developments in a monetary union. By employing a two-country New Keynesian DSGE model with collateral constraints tied to housing values, we show that a change in institutional characteristics of mortgage markets, such as the loan-to-value (LTV) ratio, is an important driver of asymmetric developments in housing markets and economic activity. Our analysis suggests that the home country where credit standards are lax booms, while the rest of European Monetary Union faces a negative output gap. Overall welfare is lower if LTV ratios are higher.
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  • Johannes Gareis & Eric Mayer, 2017. "Heterogeneous Mortgage Markets: Implications for Business Cycles and Welfare in the EMU," German Economic Review, Verein für Socialpolitik, vol. 18(2), pages 133-153, May.
    • Handle: RePEc:bla:germec:v:18:y:2017:i:2:p:133-153
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    1. Hirsch, Patrick, 2019. "Heterogeneous rental markets in a DSGE model of the euro area," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203633, Verein für Socialpolitik / German Economic Association.

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