Shujaat A. Khan
Shujaat A. Khan
"Macroprudential Policies in a Heterogeneous Agent Model of Housing Default" (Job Market Paper) [pdf]
Abstract: This paper uses a heterogeneous agent model of housing default to study how the effectiveness of macroprudential policies changes under different income and house price specifications. When calibrated to match the observed default choices of households during the financial crisis, the model has clear implications for the kind of macroprudential policies that will be more effective in different circumstances. When income shocks are large, restrictions on the loan-to-value ratio are more effective in reducing defaults, while when house price shocks are large, the default rate is more responsive to changes in payment-to-income limits. These results are an implication, filtered through the model, of the well-known double trigger fact: In the Great Recession, defaulting households tended to be those who were both seriously underwater and had experienced a substantial shock to income.
"Has Higher Household Indebtedness Weakened Monetary Policy Transmission?" (with Gaston Gelos, Federico Grinberg, Tommaso Mancini-Griffoli, Machiko Narita, and Umang Rawat) IMF Working Paper No. 19/11. [link] [VoxEU]
Abstract: Has monetary policy in advanced economies been less effective since the global financial crisis because of deteriorating household balance sheets? This paper examines the question using household data from the United States. It compares the responsiveness of household consumption to monetary policy shocks in the pre- and post-crisis periods, relating changes in monetary transmission to changes in household indebtedness and liquidity. The results show that the responsiveness of household consumption has diminished since the crisis. However, household balance sheets are not the culprit. Households with higher debt levels and lower shares of liquid assets are the most responsive to monetary policy, and the share of these households in the population grew. Other factors, such as economic uncertainty, appear to have played a bigger role in the decline of households’ responsiveness to monetary policy.
"Welfare Implications of Credit Allocation Under Alternative Macroprudential Policies"
Abstract: Alternative macroprudential tools that may achieve the same financial stability objectives will differ in how they allocate credit among households, and such differences have welfare consequences. This paper constructs a model with heterogeneous agents, a social planner, and competitive mortgage markets to conduct a comparative welfare analysis of alternative macroprudential policies. Households, failing to internalize the social costs from default, overborrow, which not only leads to a high homeownership rate but also a high default rate. A social planner can improve aggregate welfare by tightening credit conditions using various macroprudential tools. The model evaluates the tradeoffs between default rates and household welfare under alternative macroprudential rules.
"Evaluating Macroeconomic and Fiscal Performance of Alternative Fiscal Rule" (with Martin Fukac)
Abstract: This paper evaluates the properties and desirability of different fiscal rules in a microfounded DSGE model with multiple regions. We find that the macroeconomic stability improves if the government is willing to carry the costs through its balance sheets. The level of macroeconomic activity is different if the public debt is fueled by spending on social transfers, general public consumption, or public investment. Using social transfers as the instrument to achieve surplus targets provides the best macro and fiscal outcomes.