FRB: Collateral Constraints and Macroeconomic Asymmetries

International Finance Discussion Papers

Collateral Constraints and Macroeconomic Asymmetries
Luca Guerrieri and Matteo Iacoviello
2013-1082 (June 2013. latest version July 2014)

Abstract: Using Bayesian methods, we estimate a nonlinear general equilibrium model where occasionally binding collateral constraints on housing wealth drive an asymmetry in the link between housing prices and economic activity. The estimated model shows that, as collateral constraints became slack during the housing boom of 2001-2006, expanding housing wealth made a small contribution to consumption growth. By contrast, the housing collapse that followed tightened the constraints and sharply exacerbated the recession of 2007-2009. The empirical relevance of this asymmetry is corroborated by evidence from state- and MSA-level data.

Full paper, latest version (377 KB PDF) | Original Version (395 KB PDF)

Keywords
Housing, collateral constraints, occasionally binding constraints, nonlinear estimation of DSGE models, Great Recession

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