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Government Policies, Residential Mortgage Defaults and the Boom and Bust Cycle of Housing Prices

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  • Marius Ascheberg
  • Robert A. Jarrow
  • Holger Kraft
  • Yildiray Yildirim

Abstract

type="main"> We develop a micro-based macromodel for residential home prices in an economy where defaults on residential mortgages negatively affect housing prices. Our model enables us to study the impact of subprime defaults on prime borrowers and the impact of various government policies on the housing market boom and bust cycle. In this regard, our key conclusions are that (i) there is a contagion effect from subprime defaults to prime defaults due to the negative impact of subprime defaults and (ii) monetary policy is the most effective tool for decreasing mortgage defaults and increasing aggregate home prices in contrast to alternative government fiscal policies designed to loosen mortgage credit.

Suggested Citation

  • Marius Ascheberg & Robert A. Jarrow & Holger Kraft & Yildiray Yildirim, 2014. "Government Policies, Residential Mortgage Defaults and the Boom and Bust Cycle of Housing Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(3), pages 627-661, September.
    • Handle: RePEc:bla:reesec:v:42:y:2014:i:3:p:627-661
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    File URL: http://hdl.handle.net/10.1111/1540-6229.12041
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    References listed on IDEAS

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    Cited by:

    1. Harnos László, 2018. "Cycles of the Housing Market in Hungary from the Economic Crisis until Today," Naše gospodarstvo/Our economy, Sciendo, vol. 64(2), pages 3-14, June.

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