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CASMEF Seminar - Valerio Scalone (LUISS)

2 dicembre 2015 ore 17:00 - 18:00

Aula Meeting Room IV Floor V.le Romania

Title: Housing, Debt and Growth

Abstract: In this paper I study how debt and housing affect the trend of the economy. I build and estimate a DSGE model with endogenous growth and with heterogeneous agents. Savers' investments in technology determine the trend of the economy. Houses play the double role of durable good and of collateral provided by borrowers to savers. When house prices increase, borrowers increase their debt. In order to finance the debt expansion, savers reduce their investments in technology, thus lowering productivity growth and the trend of the economy. This crowding out mechanism is at play each time that house prices raise. I estimate the model by standard Bayesian techniques and find that productivity growth steadily increases during the Great Moderation, mainly explained by positive exogenous increases in the TFP. In pre-crisis period, the housing boom and the debt overhang crowded out investments in technology, lowering the trend. In addition, the slow recovery which followed the Great Recession is mostly explained by a strong negative investment shock.