NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Michael Michaux

Department of Finance and Business Economics,
Marshall School of Business,
University of Southern California,
3670 Trousdale Parkway, BRI-308,
Los Angeles, CA 90089

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NBER Working Papers and Publications

September 2013Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty
with Hui Chen, Nikolai Roussanov: w19421
We estimate a structural model of household liquidity management in the presence of long-term mortgages. Households face counter-cyclical idiosyncratic labor income uncertainty and borrowing constraints, which affect optimal choices of leverage, precautionary saving in liquid assets and illiquid home equity, debt repayment, mortgage refinancing, and default. Taking the observed historical path of house prices, aggregate income, and interest rates as given, the model quantitatively accounts for the run-up in household debt and consumption boom prior to the financial crisis, their subsequent collapse, and mild recovery following the Great Recession, especially among the most constrained households.
 
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