It is argued that parents provide help with housing downpayments in order to encourage the production of grandchildren, and that such a subsidization emanates from the ?demonstration effect:? a child?s propensity to furnish parents with attention and care can be conditioned by parental example....

This paper models the housing sector, mortgages and endogenous default in a DSGE setting with nominal and real rigidities. We use data for the period 1981-2006 to estimate our model using Bayesian techniques. We analyze how an increase in risk in the mortgage market raises the default rate and...