We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
REGRESSIVE WELFARE EFFECTS OF HOUSING BUBBLES.
- Authors
Graczyk, Andrew; Phan, Toan
- Abstract
We analyze the welfare effects of asset bubbles in a model with income inequality and financial friction. We show that a bubble that emerges in the value of housing, a durable asset that is fundamentally useful for everyone, has regressive welfare effects. By raising the housing price, the bubble benefits high-income savers but negatively affects low-income borrowers. The key intuition is that, by creating a bubble in the market price, savers' demand for the housing asset for investment purposes imposes a negative externality on borrowers, who only demand the housing asset for utility purposes. The model also implies a feedback loop: high-income inequality depresses the interest rates, facilitating the existence of housing bubbles, which in turn has regressive welfare effects.
- Subjects
HOUSING; INTEREST rates; INCOME inequality; HOME prices; LOW-income housing credit; MARKET prices; MARKET pricing
- Publication
Macroeconomic Dynamics, 2021, Vol 48, Issue 1, p2102
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100519000981