Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
967154 | Journal of Monetary Economics | 2013 | 19 Pages |
Abstract
What are the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (e.g., Fannie Mae)? A model with heterogeneous, infinitely lived households and competitive housing and mortgage markets is constructed to evaluate this question. Households can default on their mortgages via foreclosure. The bailout guarantee is a tax-financed mortgage interest rate subsidy. Eliminating this subsidy leads to a large decline in mortgage origination and increases aggregate welfare by 0.5% in consumption equivalent variation, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: it hurts low-income and low-asset households.
Keywords
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Authors
Karsten Jeske, Dirk Krueger, Kurt Mitman,