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REMS1: Adding Financial Frictions and a Housing Market to REMS

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  • José E. Boscá
  • Javier Ferri

Abstract

We introduce an update of REMS, the model used by the Spanish Ministries of Economy and Finance for ex-ante policy evaluation. We include two new features in the model: credit-constrained consumers, which are added to the existing optimizing consumers and liquidity-constrained (RoTs) consumers; and a market for housing. Credit-constrained consumers can borrow up to a limit defined by the expected value of their houses. Part of the real estate accumulated by patient households is offered to impatient and liquidity-contrained households as house to rent. Impatient households can decide between purchasing houses to occupy themselves or renting houses from patient households. Completely liquidity-constrained households only have access to rented houses. We illustrate how this housing market reacts to different shocks and we simulate the expected eßects of Spain's 2014 fiscal reform.

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  • José E. Boscá & Javier Ferri, 2016. "REMS1: Adding Financial Frictions and a Housing Market to REMS," Studies on the Spanish Economy eee2016-03, FEDEA.
    • Handle: RePEc:fda:fdaeee:eee2016-03
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    References listed on IDEAS

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    1. Eva Ortega & Margarita Rubio & Carlos Thomas, 2011. "House purchase versus rental in Spain," Working Papers 1108, Banco de España.
    2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    3. J. Boscá & A. Díaz & R. Doménech & J. Ferri & E. Pérez & L. Puch, 2010. "A rational expectations model for simulation and policy evaluation of the Spanish economy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 135-169, March.
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