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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/31371

Title: Household Leverage and the Recession
Authors: Philippon, Thomas
Midrigan, Virgiliu
Issue Date: 13-Dec-2011
Series/Report no.: FIN-11-038
Abstract: A salient feature of the recent recession is that regions that have experienced the largest changes in household leverage have also experienced the largest declines in output and employment. We study a cash-in-advance economy in which home equity borrowing, alongside public money, is used to conduct transactions. Declines in home prices tighten the cash-in-advance constraint, triggering recessions. We parameterize the model to match the key cross-sectional features of the data. The model implies that real activity is very sensitive to liquidity shocks, but not to credit shocks, and that monetary policy can significantly reduce the severity of credit-driven recessions.
URI: http://hdl.handle.net/2451/31371
Appears in Collections:Finance Working Papers

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