The Missing Home Buyers: Regional Heterogeneity and Credit Contractions (Job Market Paper)
Winner of the CEPR-TFI Household Finance Award, September 2020
Abstract: This paper demonstrates that the protracted decrease in young homeownership since the Great Recession was driven by high-house price regions, despite credit standards changing mostly nationally. Using a panel of U.S. metro areas, I calibrate a multi-region dynamic equilibrium model with overlapping generations of mobile households. Aggregate and regional dynamics are explained by the heterogeneous impacts of an aggregate credit contraction rather than by local shocks. Preexisting differences between regions and cohorts amplify differences in busts. The effect of subsidies to first-time buyers is dampened, because they fail to stimulate regions that suffer larger busts. Place-based subsidies achieve larger gains.
Revise & Resubmit, Review of Economic Studies
Abstract: Housing affordability is the main policy challenge for many large cities in the world. Zoning changes, rent control, housing vouchers, and tax credits are the main levers employed by policy makers. But how effective are they at combating the affordability crisis? We build a new framework to evaluate the effect of these policies on the well-being of its citizens. It endogenizes house prices, rents, construction, labor supply, output, income and wealth inequality, as well as the location decisions of households. Its main novel features are risk, risk aversion, and incomplete risk-sharing. We calibrate the model to the New York MSA, incorporating current zoning and affordable housing policies. Housing affordability policies carry substantial insurance value but cause misallocation in labor and housing markets. Housing affordability policies that enhance access to this insurance especially for the neediest households create large net welfare gains.
Abstract: Changes in credit supply induce large and frequent variations in households' access to unsecured debt. They generate a novel financial precautionary motive, which compounds the classical motive associated with idiosyncratic income risk, as borrowers accumulate risk-free bonds to hedge against them. Using a structural model, I estimate that this motive is an important driver of Treasury rates over the business cycle. It explains the historically low level of real rates in the last decade despite consumption growth, solving a "post-Great Recession risk-free rate puzzle". It is also critical for the volatility and comovement of household balance sheet and macroeconomic moments.
Work in Progress
Intermediary Loan Pricing, with Olivier Wang
A Macroeconomic Model with Liquidity Constraints, with Virgiliu Midrigan
Internationalization versus Regionalization in the Emerging Stock Markets, with Virginie Coudert and Karine Herve
International Journal of Economics and Finance, Vol. 20(1), pp. 16-27, 2015