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Failure to launch : housing, debt overhang, and the inflation option

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dc.contributor.author Hedlund, Aaron
dc.date.accessioned 2018-09-18T14:19:09Z
dc.date.available 2018-09-18T14:19:09Z
dc.date.issued 2018-04
dc.identifier.uri http://hdl.handle.net/10230/35456
dc.description.abstract Can inflating away nominal mortgage liabilities effectively combat recessions? I address this question using a model of illiquid housing, endogenous credit supply, and equilibrium default. I show that, in an ordinary recession, temporarily raising the inflation target has only modest or even counterproductive effects. However, during episodes like the Great Recession, inflation effectively boosts house prices, consumption, and dramatically cuts foreclosures, but only when fixed rate mortgages are the dominant instrument. The quantitative implications of inflation also vary if other nominal rigidities or demand externalities are present. In the cross section, inflation delivers especially large gains to highly leveraged homeowners.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;98
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.rights.uri https://creativecommons.org/licenses/by/4.0/
dc.subject.other Housing
dc.subject.other Liquidity
dc.subject.other Mortgage debt
dc.subject.other Foreclosure
dc.subject.other Inflation
dc.title Failure to launch : housing, debt overhang, and the inflation option
dc.type info:eu-repo/semantics/workingPaper
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess


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