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dc.contributor.authorBEKIROS, Stelios D. 
dc.contributor.authorNILAVONGSE, Rachatar
dc.contributor.authorUDDIN, Gazi S.
dc.date.accessioned2017-12-13T13:20:15Z
dc.date.available2017-12-13T13:20:15Z
dc.date.issued2017
dc.identifier.issn1725-6704
dc.identifier.urihttp://hdl.handle.net/1814/49404
dc.description.abstractWe contribute to the literature on dynamic stochastic general equilibrium models with housing collaterals by including shocks to house price expectations. We incorporate endogenous mortgage defaults which are rarely included in DSGE models with housing collaterals. We show that our theoretical model of mortgage default is consistent with empirical evidence. We use this particular DSGE setup to study the effects of variations in house price expectations on macroeconomic dynamics and their implications for monetary policy. Extensive model simulations show that an increase in expected future house prices leads to a decline in mortgage default rates as well as in interest rates on loans, whereas it leads to an increase in house prices, household debt, bank leverage ratios and economic activity. As opposed to previous studies we find that inflation is low during a house price boom. Finally, we demonstrate that although monetary policy that reacts to household credit growth improves the stability of the real economy and enhances financial stability, yet it jeopardizes price stability.en
dc.format.mimetypeapplication/pdfen
dc.language.isoenen
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2017/09en
dc.rightsinfo:eu-repo/semantics/openAccessen
dc.subjectHouse price expectationsen
dc.subjectInflation dynamicsen
dc.subjectMonetary policyen
dc.subjectMortgage defaultsen
dc.subjectE32en
dc.subjectE44en
dc.subjectE52en
dc.titleMortgage defaults, expectation-driven house prices and monetary policyen
dc.typeWorking Paperen


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