Sevim Kösem

Phd Candidate in Economics, LSE

CONTACT DETAILS

Department of Economics

London School of Economics

Houghton Street

London

WC2A 2AE

s.kosem@lse.ac.uk

Welcome to my personal website! I am a PhD student in London School of Economics and Centre for Macroeconomics. My research interests lie in the fields of macro and international finance. Before starting my PhD I worked on monetary policy, macroeconomic forecasting and policy analysis.

In Fall 2019, I will join the International Directorate of the Bank of England as a Research Economist.


JOB MARKET PAPER

INCOME INEQUALITY, MORTGAGE DEBT AND HOUSE PRICES

Abstract: The last few decades in the US have been characterized by two secular trends: rising income inequality and declining real interest rates. This paper studies macroeconomic and financial stability implications of increasing income inequality and discusses how a low interest rate environment can alter its consequences. I develop a parsimonious model of mortgage and housing markets. The framework departs from standard lending models with exogenous lending constraints by incorporating collateral into a rational default model. The model predicts a decline in house prices and a rise in aggregate default risk in equilibrium following an increase in inequality. I then show that low real rates mitigate the depressing effect of inequality on house prices at the cost of amplifying aggregate default risk in the mortgage market. Using a panel data of US states between the years 1992-2015 for house prices and 2003-2015 for mortgage variables, I verify the model's predictions. I find that a rise in income inequality is associated with (i) a decline in house prices, (ii) an increase in mortgage delinquencies and (iii) a decline in mortgage debt.

JEL codes: D31, E44, E58, G21, R21