Title: "Houses, Debt and Growth"
In this paper I study how debt and housing affect the trend growth of
a closed economy. I build and estimate a DSGE model with endogenous
growth and with heterogeneous agents, savers and borrowers. I find
that in response to an increase in the nominal collateral value,
savers decrease their investments in technology, thus reducing the
productivity growth and the trend of the economy. The growth
coefficient is found to steadily increase during the Great Moderation,
mainly explained by positive TFP shocks. In pre-crisis period, the
housing boom and the debt overhang crowd out investments in
technology, lowering the growth trend coefficient. The slow recovery
which followed the Great Recession is mostly explained by a strong
negative investment shock.
Counterfactual exercises show that the presence of debt in the economy
triggers a new propagation mechanism affecting the evolution of the
trend and depending on the variation of the nominal collateral value.
In particular, the effect of the investment shock is postponed with
respect to the counter-factual scenario in which the net debt is zero.