Polinar: “The Mortgage Credit Cycle”

Time:                   13:00-14:00 Hrs

Venue:                 CPB-Office, Bezuidenhoutseweg 30, Den Haag, room 3, Braamzaal

Presentation:   Dirk Schoenmaker (RSM and CEPR) and Peter Wierts (DNB and VU)

Discussant:        Not known yet

Language:          Dutch

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Abstract:

This paper provides a model of the mortgage credit cycle. All agents react individually to house price developments, while collectively creating a mortgage credit cycle. The main result is a reduced-from house price equation that shows how structural innovations can set off an endogenous cycle. The cyclical channels include pro-cyclical credit supply, adaptive house price expectations, wealth effects and delayed responses in housing supply. They all contribute to persistence and mean reversion in house prices. Bank capital buffers and LTV caps for households dampen the mortgage credit cycle, next to increasing resilience against house price shocks.

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