Borrowers in states with non-recourse mortgage law face limited liability on their mortgage loans. We examine how non-recourse law affects housing price volatility throughout the boom-bust cycle and whether non-recourse law-driven housing price volatility generates real effects on consumption...

Empirically, the relative volatility of consumption to output decreases with income. The standard small-open economy real business cycle model, however, produces a positive relationship. We can recover the negative relationship when we augment the standard model with micro-founded expropriations...