Research
Work in progress
Work in progress
“Why have house prices diverged? The role of the interest rate” (Link)
Abstract:What explains the widening gap in house prices between U.S. metropolitan areas? In this paper, I use a dynamic multi-region model with endogenous house prices and migration decisions to answer this question. A key feature of the model is the presence of location-varying land prices, which makes the user cost of housing more interest rate sensitive in expensive regions. Therefore, a lower interest rate causes both a desire to migrate to expensive regions, and a larger increase in housing demand among those already residing there. Calibrating the model to data for the U.S., I show that the interest rate decrease can explain 45 percent of the increased price dispersion since 1995. Turning to dynamics, prices are quick to adjust to the lower interest rate, due to households being forward looking. This large and rapid change in prices leads to significant wealth and welfare gains among households residing in expensive cities.“Down-payment requirements: Implications for portfolio choice and consumption” (with Karin Kinnerud and Kasper Kragh-Sørensen) (Link)
Abstract:This paper studies how down-payment requirements for house purchases affect households’ saving and housing decisions, and the implications for macroeconomic policy. Using a quantitative model of the U.S. economy, we find that households not only postpone homeownership when the down-payment constraint is higher, but they also delay when they start saving for the house. We show analytically that this result holds under standard assumptions for households’ earnings and preferences. The changes to saving and portfolio choices affect the distribution of liquidity-constrained households, which in turn impacts aggregate responses to policy. Specifically, the cash-flow channel of monetary policy is reduced, and it becomes increasingly important to direct fiscal transfers at low-income households to achieve the largest consumption response. We also find that a stricter down-payment requirement is associated with substantial welfare losses, especially for high-income households.And a few more projects....
Publications
Publications
“Costly Reversals of Bad Policies: the Case of the Mortgage Interest Deduction” (with Karin Kinnerud and Kasper Kragh-Sørensen)
Review of Economic Dynamics (p. 85-107, vol. 40, 2021)(Link)
Abstract:This paper measures the welfare effects of removing the mortgage interest deduction under a variety of implementation scenarios. To this end, we build a life-cycle model with heterogeneous households calibrated to the U.S. economy, which features long-term mortgages and costly refinancing. In line with previous research, we find that most households would prefer to be born into an economy without the deductibility. However, when we incorporate transitional dynamics, less than forty percent of households are in favor of a reform and the average welfare effect is negative. This result holds under a number of removal designs.