NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Simple Model of Subprime Borrowers and Credit Growth

Alejandro Justiniano, Giorgio E. Primiceri, Andrea Tambalotti

NBER Working Paper No. 21942
Issued in January 2016
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi, 2009). We present a simple model with prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Due to their low income, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on disproportionately more debt than their prime counterparts, who are not subject to that constraint.

download in pdf format
   (1601 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21942

Published: Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2016. "A Simple Model of Subprime Borrowers and Credit Growth," American Economic Review, vol 106(5), pages 543-547. citation courtesy of

Users who downloaded this paper also downloaded* these:
Gertler, Kiyotaki, and Prestipino w21892 Wholesale Banking and Bank Runs in Macroeconomic Modelling of Financial Crises
Dovis, Golosov, and Shourideh w21948 Political Economy of Sovereign Debt: A Theory of Cycles of Populism and Austerity
Mian, Sufi, and Verner w21581 Household Debt and Business Cycles Worldwide
Barberis, Greenwood, Jin, and Shleifer w21944 Extrapolation and Bubbles
Hachem and Song w21880 Liquidity Regulation and Unintended Financial Transformation in China
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us