During the Great Recession, the collapse of consumption across the U.S. varied greatly but systematically with house-price declines. We find that financial distress among U.S. households amplified the sensitivity of consumption to house-price shocks. We uncover two essential facts: (1) the...

Using a model with housing search, endogenous credit constraints, and mortgage default, this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross-sectional consumption during the Great Recession. Left tail shocks to labor market uncertainty and...

We argue that there is a connection between the interbank market for liquidity and the broader financial markets, which has its basis in demand for liquidity by banks. Tightness in the interbank market for liquidity leads banks to engage in what we term “liquidity pull-back,” which involves...

Both changing investors' behaviour and contingent events, such as financial crisis, stimulated a debate around the distribution of financial products for which an active market doesn't exist. Investing in illiquid financial instruments requires a certain degree of financial education in order to...

We examine the relation between bank risk management procedures and sales of mortgages during the financial crisis of 2007-2009. Research suggests that banks employing an originate-to-distribute strategy devoted little effort to screening, thereby diminishing their ability to sell loans during...

We propose a novel conceptual approach to transparently characterizing credit market outcomes in economies with multi-dimensional borrower heterogeneity. Based on characterizations of securities' implicit demand for bank equity capital, we obtain closed-form expressions for the composition of...

The global financial crisis of the past decade has shaken the research and policy worlds out of their belief that housing markets are mostly benign and immaterial for understanding economic cycles. Instead, a growing consensus recognizes the central role that housing plays in shaping economic...

During the Great Recession, the collapse of consumption across the US varied greatly but systematically with house-price declines. Our message is that household financial health matters for understanding this relationship. Two facts are essential for our finding: (1) the decline in house prices...

During the Great Recession, the collapse of consumption across the U.S. varied greatly but systematically with house-price declines. We find that financial distress among U.S. households amplified the sensitivity of consumption to house-price shocks. We uncover two essential facts: (1) the...

Can inflation cure mortgage debt overhang and mitigate the severity of housing busts? Focusing on the Great Recession, I address this question through the lens of a quantitative macroeconomic model of illiquid housing, endogenous mortgage pricing, and equilibrium default. First, I show that an...