Household debt and crises of confidence

  • We show that the size of collateralized household debt determines an economy’s vulnerability to crises of confidence. The house price feeds back on itself by contributing to a liquidity effect, which operates through the value of housing in a collateral constraint. Over a specific range of debt levels this liquidity feedback effect is strong enough to give rise to multiplicity of house prices. In a dynamic setup, we conceptualize confidence as a realization of rationally entertainable belief-weightings of multiple future prices. This delivers debt-level-dependent bounds on the extent to which confidence may drive house prices and aggregate consumption.

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Metadaten
Author:Thomas Hintermaier, Winfried KoenigerORCiDGND
URN:urn:nbn:de:hebis:30:3-386603
URL:http://ssrn.com/abstract=2672944
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 519
Series (Serial Number):CFS working paper series (519)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Date of Publication (online):2015/10/14
Date of first Publication:2015/10/14
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2015/12/08
Tag:Collateral constraints; Consumer confidence; Household debt; Multiple equilibria
Issue:This version: October 1, 2015
Page Number:55
Note:
First version: February 2012 – This version: October 1, 2015
HeBIS-PPN:36852325X
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht