Kalenderdetails

Vortragende Person/Vortragende Personen:
Karin Kinnerud (BI Norwegian Business School)

Down-payment requirements: Implications for portfolio choice and consumption

^{with Kasper Kragh Balke and Markus Karlman}

This paper studies how down-payment requirements for house purchases affect households’ savings and housing choices, and responses to macroeconomic policy. Using a quantitative model of the U.S. economy, we find that households not only postpone homeownership when the down-payment constraint is higher, but they also delay when they start saving for the house. We show analytically that this result holds under standard assumptions for households’ earnings and preferences.
Since a stricter constraint causes households to adjust their savings and portfolio choices, it is associated with significant welfare losses. Moreover, a larger down-payment requirement affects the distribution of liquidity-constrained households,which has implications for policy. Specifically, the cash-flow channel of monetary policy is reduced, and it becomes increasingly important to direct fiscal transfers at low-income households to get the largest consumption response.

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