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Deleveraging of the household sector

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  • Giorgio Primiceri

    (Northwestern University)

Abstract

Household deleveraging is often cited as one of the key headwinds bearing on the US economy as it slowly recovers from the Great Recession of 2007-2009. We calibrate a general equilibrium model of this process of debt reduction, in which impatient households borrow from patient ones, using the value of their homes as collateral. In the model, an exogenous reduction in the loan-to-value ratio required by lenders, has sizable aggregate consequences only if the real interest rate cannot fall enough to induce the lenders to reduce their savings (as in a model with sticky prices and a zero lower bound for the nominal interest rate).

Suggested Citation

  • Giorgio Primiceri, 2012. "Deleveraging of the household sector," 2012 Meeting Papers 628, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:628
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