Research
Research
Recourse versus Non-recourse Mortgage Debt and Costly State Verification.
WISO-HH Working Paper Series No. 89., August 2025.
Abstract:
This paper studies how mortgage recourse — the ability of lenders to pursue borrowers for residual debt after foreclosure — shapes housing and macroeconomic dynamics. I develop a DSGE model with savers, borrowers, strategic default, and an endogenous loan-to-value (LTV) ratio. Stronger recourse compresses steady state spreads whereas house prices, leverage, mortgage debt and, hence, default rates rise. Furthermore, recourse amplifies financial-sector volatility and redistributes welfare, benefiting savers through an insurance- like channel. The analysis highlights the trade-offs inherent in deficiency judgments and their implications for housing-market stability and the broader economy.
JEL Classification: E32, E44, G01, R31
Keywords: DSGE, housing, recourse.
House Prices and Macroprudential Policy in an Estimated DSGE Model of New Zealand
(Journal of Macroeconomics)
Abstract:
We analyse macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to New Zealand. Our estimates show that monetary policy has large spillover effects on house prices, however it has not been a major driver of house prices in New Zealand which have instead been driven by sector-specific shocks. We consider macroprudential policies, including the loan-to-value restrictions that have been implemented in New Zealand. We find that loan-to-value restrictions reduce house prices with negligible effects on consumer prices, suggesting they can be used without derailing monetary policy. Efficient policy frontier analysis suggests macroprudential policy is a useful addition to monetary policy, and the two do not need to be coordinated. We estimate that the loan-to-value restrictions imposed in New Zealand in 2013 reduced house prices by 3.8% and that greater forward guidance on their duration would have made them more effective.
Out of Sync Subnational Housing Markets and Macroprudential Policies in the UK
(De Economist)
Abstract:
We examine whether regionally differentiated macroprudential policies can address financial stability concerns and moderate house price differences in the UK. We disaggregate both the household sector and the housing stock in a two-region DSGE model with out of sync subnational housing markets and compare four policy types: standard monetary policy, leaning against the wind monetary policy, national macroprudential policy or one that targets region-specific LTV ratios. In terms of reducing variances of house prices, regionally differentiated macroprudential policy performs best, provided the policy authorities are concerned with stabilising output and house prices rather than simply minimising the variance of inflation.
Monetary Policy Transmission in China: A DSGE Model with Parallel Shadow Banking and Interest Rate Control
(BOFIT Discussion Paper No. 9/2015 )
Abstract:
The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.