Template-Type: ReDIF-Paper 1.0
Title: Household Debt and Crises of Confidence
Author-Name: Thomas Hintermaier
Author-Email: hinterma@uni-bonn.de
Author-Name: Winfried Koeniger
Author-Email: winfried.koeniger@unisg.ch

Classification-JEL: E21, E32, D91
Keywords: Household debt, Consumer confidence, Collateral constraints, Multiple equilibria
 
Abstract: We show that the size of collateralized household debt determines an economy’s vulnerability
to crises of confidence. The house price feeds back on itself by contributing to a liquidity
effect, which operates through the value of housing in a collateral constraint. Over a specific
range of debt levels this liquidity feedback effect is strong enough to give rise to multiplicity
of house prices. In a dynamic setup, we conceptualize confidence as a realization of rationally
entertainable belief-weightings of multiple future prices. This delivers debt-level-dependent
bounds on the extent to which confidence may drive house prices and aggregate consumption.



Note: 
Length: 52
Creation-Date: 2015-07
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse06_2015.pdf  
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse06_2015