Research Working Papers :
Abstract: In this paper, we re-examine the relative importance of credit frictions and sticky prices regarding the effects of monetary policy in a two-sector sticky price model with durable and non-durable goods. The credit frictions are a combination of loan-to-value (LTV) and payment-to-income (PTI) constraints faced by borrowers. In this model, a monetary contraction drastically reduces the maximum amount consumers can borrow to purchase durable goods. As a result, the model predicts that the consumption of durables falls, along with non-durables, even when durable good prices are fully flexible. Also, output falls and the nominal interest rate increases, consistent with the empirical evidence. Thus, credit frictions alone can align the predictions of the model with the empirical evidence, without the need of sticky durable good prices. Adjustment costs and habits improve further the predictions of the model.
Abstract: This paper examines the effects of monetary policy on durable and non-durable goods and output in a two-sector DSGE model with flexible durable good prices, credit frictions and long-term loans. The credit frictions are a combination of loan-to-value and payment-to-income constraints faced by borrowers. In this model, the effects of monetary policy are qualitatively similar to but quantitatively weaker than the case with short-term loans. The reason for the weaker quantitative results is the incomplete transmission of monetary policy shocks to the long-term interest rate associated with the long-term loans.
Research in Progress:
House Prices Under Heterogeneous Expectation, with Cars Hommes and Mikael Khan
Update on Policy Model to Analyze Macroprudential Regulations and Monetary Policy, with Sami Alpanda and Gino Cateau
Unregulated Lending, Mortgage Regulations and Monetary Policy, with Brian Peterson
House Prices, Financial Frictions and Rising Chinese Outward Direct Investment
Policy :