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An empirical dynamic model of mortgage default in Colombia between 1997 and 2004

Author

Listed:
  • Salvador Navarro

    (University of Wisconsin-Madison)

  • Juan Esteban Carranza

    (University of Wisconsin-Madison)

Abstract

We estimate a dynamic model of default for a cohort of Colombian debtors between 1997 and 2004, which was a period of unprecedented financial stress in Colombia. We develop a methodological framework based on a fully dynamic behavioral model that accounts for both cross-sectional and aggregate heterogeneity. Specifically we control for the unobserved heterogeneity using non-matching survey data and a dynamic aggregate shock that can be inferred directly from the observed aggregate behavior. Results indicate that the dynamic structure and the unobserved heterogeneity are crucial for identifying correctly the impact of different factors on default behavior. We also point out that the methodology's applicability goes beyond the estimation of default models.

Suggested Citation

  • Salvador Navarro & Juan Esteban Carranza, 2008. "An empirical dynamic model of mortgage default in Colombia between 1997 and 2004," 2008 Meeting Papers 269, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:269
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    References listed on IDEAS

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    3. Heckman, James J. & Navarro, Salvador, 2007. "Dynamic discrete choice and dynamic treatment effects," Journal of Econometrics, Elsevier, vol. 136(2), pages 341-396, February.
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    7. Juan Esteban Carranza & Dairo Estrada, 2007. "An empirical characterization of mortgage default in Colombia between 1997 and 2004," Borradores de Economia 4018, Banco de la Republica.
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