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dc.contributor.authorGuren, Adam M.en_US
dc.contributor.authorMcQuade, Timothy J.en_US
dc.date2019-12-10
dc.date.accessioned2020-05-14T15:15:16Z
dc.date.available2020-05-14T15:15:16Z
dc.date.issued2020-05
dc.identifier.citationA. Guren, T. McQuade. 2020. "How Do Foreclosures Exacerbate Housing Downturns?." The Review of Economic Studies, Volume 87, Issue 3, pp. 1331 - 1364. https://doi.org/10.1093/restud/rdaa001
dc.identifier.issn0034-6527
dc.identifier.urihttps://hdl.handle.net/2144/40846
dc.description.abstractThis article uses a structural model to show that foreclosures played a crucial role in exacerbating the recent housing bust and to analyse foreclosure mitigation policy. We consider a dynamic search model in which foreclosures freeze the market for non-foreclosures and reduce price and sales volume by eroding lender equity, destroying the credit of potential buyers, and making buyers more selective. These effects cause price-default spirals that amplify an initial shock and help the model fit both national and cross-sectional moments better than a model without foreclosure. When calibrated to the recent bust, the model reveals that the amplification generated by foreclosures is significant: ruined credit and choosey buyers account for 25.4% of the total decline in non-distressed prices and lender losses account for an additional 22.6%. For policy, we find that principal reduction is less cost-effective than lender equity injections or introducing a single seller that holds foreclosures off the market until demand rebounds. We also show that policies that slow down the pace of foreclosures can be counterproductive.en_US
dc.format.extentp. 1331 - 1364en_US
dc.language.isoen_US
dc.publisherOxford University Press (OUP)en_US
dc.relation.ispartofThe Review of Economic Studies
dc.rights© The Author(s) 2020. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.en_US
dc.subjectEconomicsen_US
dc.subjectHousing prices & dynamicsen_US
dc.subjectForeclosuresen_US
dc.subjectSearchen_US
dc.subjectGreat Recessionen_US
dc.titleHow do foreclosures exacerbate housing downturns?en_US
dc.typeArticleen_US
dc.description.versionAccepted manuscripten_US
dc.identifier.doi10.1093/restud/rdaa001
pubs.elements-sourcemanual-entryen_US
pubs.notesEmbargo: Not knownen_US
pubs.organisational-groupBoston Universityen_US
pubs.organisational-groupBoston University, College of Arts & Sciencesen_US
pubs.organisational-groupBoston University, College of Arts & Sciences, Department of Economicsen_US
pubs.publication-statusPublished onlineen_US
dc.date.online2020-01-11
dc.identifier.mycv70657


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