From 06301ba746b85c7151763bf6b0a8ad9af8c3fda1 Mon Sep 17 00:00:00 2001 From: jliu226 Date: Mon, 9 Feb 2026 12:09:23 -0500 Subject: [PATCH 1/3] Add literature context to HKMOHousingChannelMP Co-authored-by: Cursor --- .../HKMOHousingChannelMP.ipynb | 605 +++++++++--------- .../MP-Housing-Channel.bib | 316 +++++++++ .../HKMOHousingChannelMP/prior-literature.md | 15 + .../proposed-revisions.md | 31 + .../subsequent-literature-analysis.md | 19 + 5 files changed, 695 insertions(+), 291 deletions(-) create mode 100644 models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/MP-Housing-Channel.bib create mode 100644 models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/prior-literature.md create mode 100644 models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/proposed-revisions.md create mode 100644 models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/subsequent-literature-analysis.md diff --git a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb index e63643a1..bcf28c31 100644 --- a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb +++ b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb @@ -1,295 +1,318 @@ { - "cells": [ - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "slide" + "cells": [ + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "slide" + } + }, + "source": [ + "

Paper 1: \"Monetary Policy, Heterogeneity, and the Housing Channel\"
\n", + "

\n", + "
Hedlund, Karahan, Mitman, Ozkan (2017)
\n", + "

\n", + "
Nino Kodua
\n", + "

\n", + "
Johns Hopkins University
\n", + "

\n", + "
February 16, 2020
" + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "slide" + } + }, + "source": [ + "# Overview\n", + "\n", + "* **Research Question: What is the extent to which housing and mortgage debt affect the transmission and effectiveness of monetary policy?**\n", + "* **Contribution:** First structural HA-NK model that jointly has heterogeneous households, a frictional housing market and mortgages, and nominal rigidities, to analyze how monetary policy transmits through the housing channel.\n", + "* **Channels to consider:** \n", + " * **Direct intertemporal substitution effect**\n", + " * **House price channel**\n", + " * **Liquidity channel**\n", + " * **Cash-flow channel**\n", + " * **Redistribution channel**\n", + "* **HANK model with nominal rigidities and a frictional housing market** \n", + "\n" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Prior Literature\n", + "\n", + "The HKM&O (2017) paper sits on several strands of prior work. **Housing, wealth, and consumption:** Micro evidence showed that house prices affect spending in different ways for different households—e.g. Campbell and Cocco (2007) and Case, Quigley, and Shiller (2011) found important housing-wealth or collateral effects, while Attanasio et al. (2009) and Browning et al. (2013) stressed collateral/credit and common factors rather than a pure wealth effect. That heterogeneity in who responds to house prices and why is central to a \"housing channel\" of policy. **Heterogeneity and monetary transmission:** Work on hand-to-mouth and \"wealthy hand-to-mouth\" (Kaplan, Violante, and Weidner 2014), partial consumption insurance (Blundell, Pistaferri, and Preston 2008; Kaplan and Violante 2010), and the redistribution channel of monetary policy (Di Maggio, Kermani, and Ramcharan 2014; Gornemann, Kuester, and Nakajima 2014) showed that differences in marginal propensities to consume and in exposure to interest rates and inflation are key for how monetary policy affects aggregate demand. **Housing and mortgages in general equilibrium:** Models with heterogeneous households, illiquid housing, default, and foreclosures—e.g. Jeske, Krueger, and Mitman (2013), Hedlund (2016), Corbae and Quintin (2015), and Favilukis (2010)—and \"balance sheet recession\" ideas (Huo and Ríos-Rull 2013) provided the tools to embed a frictional housing market and mortgage contracts in a macro model. Together, this literature gave the ingredients HKM&O use: a heterogeneous-agent framework where housing is illiquid and collateral matters, and where monetary policy works partly through the housing channel and redistribution, which their paper then formalizes in a single model.\n", + "\n", + "**Key foundational papers:** Jeske, Krueger & Mitman (2013); Hedlund (2016); Kaplan & Violante (2010, 2014); Blundell, Pistaferri & Preston (2008); Campbell & Cocco (2007); Favilukis (2010); Di Maggio, Kermani & Ramcharan (2014). See `prior-literature.md` in this folder for details." + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "slide" + } + }, + "source": [ + "# Households\n", + "\n", + "* **Infinitely lived households with uninsurable idiosyncratic labor productivity risk**\n", + "
" + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "subslide" + } + }, + "source": [ + "## Selling decision of a household: \n", + "
\n", + "\n", + " \n", + " \\begin{aligned}\n", + "V_{O W N}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right)=\\max _{\\varsigma_{t} \\in\\{0,1\\}} \\varsigma_{t} V_{S E L L}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right)+\\left(1-\\varsigma_{t}\\right) V_{N S e l l}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right)\n", + " \\end{aligned}\n", + " \n", + "\n", + "\n", + "* ***$\\varsigma_{t}$ - Mortgage initiation cost;*** \n", + "* ***$M_{t}$ - Mortgage size;*** \n", + "* ***$h_{t}$ - House size;*** \n", + "* ***$z_{t}$ - Idiosyncratic labor productivity;***\n", + "\n" + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "subslide" + } + }, + "source": [ + "## A household wanting to sell the house chooses a list price ${x_{s}}$\n", + "
\n", + "\n", + " \n", + "\\begin{aligned} \n", + " V_{S E L L}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right) &=\\max _{x_{s t}}-\\xi+\\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right) V_{N O w n}^{t}\\left(a_{t}+x_{s t}-M_{t}, z_{t}\\right) \\\\ &+\\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right) V_{N S e l l}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right) \n", + " \\end{aligned}\n", + " \n", + " \n", + "\n", + "* ***$\\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right)$ - Probability of a meeting between a real estate broker and a seller;***\n", + "* ***$\\theta_{t}\\left(x_{s}, h\\right)$ - tightness of the submarket for house size $h$ and a price ${x_{s}}$***\n", + "* ***$\\xi$ - utility cost if homeowner tries but fails to sell the house***\n", + "
\n", + "\n", + "* **Free entry condition for brokers:**\n", + "\n", + " \n", + "\\begin{aligned} \\kappa h=\\overbrace{\\alpha_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right)}^{\\text {prob of match }} \\overbrace{\\left(p_{t}^{H} h-x_{s}\\right)}^{\\text {broker revenue }}\\end{aligned}\n", + " \n", + " \n", + "\n", + "\n", + "## Buying decision of a household who does not own a house (recently sold or never owned)\n", + "
\n", + "\n", + " \n", + "\\begin{aligned} \n", + "V_{N O w n}^{t}\\left(a_{t}, z_{t}\\right)=\\max _{B u y_{t} \\in\\{0,1\\}} B u y_{t} V_{B u y}^{t}\\left(a_{t}, z_{t}\\right)+\\left(1-B u y_{t}\\right) V_{R e n t}^{t}\\left(a_{t}, z_{t}\\right)\n", + "\\end{aligned}\n", + " \n", + " " + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "subslide" + } + }, + "source": [ + "## Household who buys a house\n", + "
\n", + "\n", + " \n", + "\\begin{aligned} \n", + " V_{B u y}^{t}\\left(a_{t}, z_{t}\\right)=\\max _{h_t, M_{t+1}, b_{t+1}, c_{t}, l_{t} \\geq 0} u\\left(c_{t}, h_{t}, l_{t}\\right)+\\beta_{L} \\mathbb{E}\\left[V_{o w n}^{t+1}\\left(a_{t+1}, M_{t+1}, h_{t+1}, z_{t+1}\\right)\\right]\\end{aligned} \n", + "\\begin{aligned} s.t. P_{t} c_{t}+q_{t}^{B} b_{t+1}+p_{t}^{H} h_{t} & \\leq a_{t}+q_{m t}^{0} M_{t+1} \\\\ a_{t+1} &=P_{t+1} w_{t+1} z_{t+1} l_{t+1}+b_{t+1} \\end{aligned} \n", + " \n", + " \n", + "\n", + "\n", + "* **involves decisions of house price, mortgage debt payment, bond holdings, consumption and labor supply** \n", + "* **Banks issue long-term, adjustable rate mortgage contracts.** \n", + " * **Borrower received nominal resources $q_{m t}^{0} M_{t+1}$ ($q_{m t}^{0}$ - mortgage price at origination).**\n", + " * **Interest rate on the loan $r_{m t}$ adjusts each period:** \n", + " \n", + " \\begin{aligned}1+r_{m t}=\\underbrace{(1+\\phi)}_{\\text {spread }} \\underbrace{\\left(1+r_{t}\\right)\\left(1+\\pi_{t}\\right)}_{\\text {nominal risk-free rate }}\\end{aligned} \n", + " \n", + "\n", + "\n", + "## Household who rents a house\n", + "
\n", + "\n", + " \n", + "\\begin{aligned} \n", + "V_{\\text {Rent }}^{t}\\left(a_{t}, z_{t}\\right)=\\max _{b_{t+1}, s_{t}, c_{t}, l_{t} \\geq 0} u\\left(c_{t}, h_{t}, l_{t}\\right)+\\beta_{L} \\mathbb{E}\\left[V_{N O w n}^{t+1}\\left(a_{t+1}, z_{t+1}\\right)\\right]\n", + "\\end{aligned} \n", + "\\begin{aligned} s.t. P_{t} c+q_{t}^{B} b_{t+1}+P_{t} r_{s} s_{t} & \\leq a_{t} \\\\ s_{t} & \\leq \\bar{s} \\\\ a_{t+1} &=P_{t+1} w_{t+1} z_{t+1} l_{t+1}+b_{t+1} \\end{aligned}\n", + " \n", + " \n", + "
\n", + "\n", + "* **$s_t$ - service flow from renting a house**" + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "slide" + } + }, + "source": [ + "## Mortgages and Banks - two types of risks when issuing loans\n", + "\n", + "**1. Borrowers default - foreclosure**\n", + " * **Bank sells the repossessed house (REO)** \n", + " * **in a frictional decentralized housing market as individual sellers to**\n", + " * **incurs a loss $\\gamma^{ROE}$**\n", + " * **Value to banks of repossessing a house size $h$:** \n", + " \n", + " \n", + " \n", + " \\begin{aligned} J_{R E O}^{t}(h)=R_{R E O}^{t}(h)-\\eta h+\\frac{1}{1+r_{t+1}} J_{R E O}^{t+1}(h)\n", + " \\end{aligned}\n", + " \n", + " \n", + " \n", + "\n", + " \n", + "\\begin{aligned} R_{R E O}^{t}(h)=\\max \\left\\{0, \\max _{x_{s} \\geq 0} \\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right)\\left[\\left(1-\\gamma^{R E O}\\right) x_{s}-\\left(-\\eta h+\\frac{1}{1+r_{t+1}} J_{R E O}^{t+1}(h)\\right)\\right]\\right\\}\n", + " \\end{aligned}\n", + " \n", + " \n", + " \n", + "* ***$\\eta$ - the cost of holding onto the house (maintenance, property taxes, etc.)*** \n", + "* ***$R_{R E O}^{t}(h)$ - the option value of trying to sell the house in period $t$***\n", + "\n", + "\n", + " \n", + "**2. Prepayment and refinancing the loan by households**\n", + " \n", + "\n" + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "subslide" + } + }, + "source": [ + "## Mortgages and Banks - two types of risks when issuing loans\n", + "
\n", + "\n", + "* **Banks take these risks into account and determine the mortgage price $q_{m t}^{0}$ accordingly:**\n", + "\n", + "
\n", + " \n", + " \n", + " \\begin{aligned} q_{m t}\\left(M_{t+1}, b_{t+1}, h_{t}, z_{t}\\right) M_{t+1}=\\frac{1}{\\left(1+r_{m t}\\right)} \\mathbb{E}\\{\\overbrace{\\tilde{p}_{t+1}\\left(\\theta_{t+1}\\left(x_{s t+1}, h_{t}\\right)\\right) M_{t+1}}^{\\text {sell }+\\text { repay }}+\\overbrace{\\left[1-\\tilde{p}_{t+1}\\left(\\theta_{t+1}\\left(x_{s t+1}, h_{t}\\right)\\right)\\right]}^{\\text {no sale (do not try } / \\text { fail })}\n", + "\\times[\\underbrace{d_{t+1} \\min \\left\\{P_{t+1} J_{R E O}(h), M_{t+1}\\right\\}}_{\\text {default + repossession }}+\\operatorname{Refi}_{t+1} M_{t+1}\n", + "\\left.\\left.+\\left(1-d_{t+1}-\\operatorname{Refi}_{t+1}\\right)(\\underbrace{M_{t+1}-\\frac{M_{t+2}}{\\left(1+r_{m t+1}\\right)}}_{\\text {borrower payment net of servicing costs }}+\\underbrace{q_{m t+1}\\left(M_{t+2}, b_{t+2}, h_{t}, z_{t+1}\\right) M_{t+2}}_{\\text {continuation value of new } M^{\\prime \\prime}})\\right]\\right\\}\n", + " \\end{aligned}\n", + " \n", + " " + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "subslide" + } + }, + "source": [ + "## Additional Ingredients: \n", + "
\n", + "\n", + " \n", + "* **To close the model:**\n", + " * **Government sponsored enterprises**\n", + " * **provide insurance to the banks against the default risk of mortgages**\n", + " * **Intermediate goods produces - monopolistically competitive**\n", + " * **A representative final goods produce**\n", + " * **intermediate goods into the final consumption good**\n", + " * **Government - sets fiscal policy**\n", + " * **Monetary authority - sets the nominal interest rate**\n", + " " + ] + }, + { + "cell_type": "markdown", + "metadata": { + "slideshow": { + "slide_type": "slide" + } + }, + "source": [ + "## Results:\n", + "\n", + "* **The calibrated steady state of the model** \n", + " * **matches heterogeneity in home ownership, leverage and MPC across households**\n", + " * **MPC differs between low- and high-loan-to-value (LTV) households)**\n", + " * **the US microeconomic & macroeconomic data over the past 20 years**\n", + "* **Effectiveness of the monetary policy depends on mortgage debt distribution:**\n", + " * **In a high-LTV economy expansionary monetary policy is more effective**" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Subsequent Literature\n", + "\n", + "Work that cites HKM&O has taken several directions. The **refinancing and cash-flow channel** has been tested with regional and micro data: Beraja, Fuster, Hurst, and Vavra (QJE) use regional variation in mortgage structure and refinancing exposure; Wong ties the mechanism to population aging; and Cloyne, Ferreira, and Surico (REStud) provide direct evidence on how household debt alters the transmission of monetary policy. The literature has also embraced **micro heterogeneity for macro policy**—Kaplan and Violante (JEP) synthesize how heterogeneity in liquidity, debt, and MPC shapes the effects of monetary and other shocks—and **housing, credit, and macroprudential policy** (Funke et al., Koeniger et al., Pidkuyko). Central banks (Sveriges Riksbank, IMF) have framed the open question of whether higher household indebtedness has weakened monetary policy transmission. Open gaps remain: optimal monetary policy and welfare in HA-housing models; behavior at the ZLB and under unconventional policy; renters and tenure choice; structural estimation; and long-run distributional effects.\n", + "\n", + "**Most important subsequent papers:** Beraja et al. (QJE), \"Regional Heterogeneity and the Refinancing Channel of Monetary Policy\"; Cloyne et al. (REStud), \"Monetary Policy when Households have Debt\"; Kaplan & Violante (JEP), \"Microeconomic Heterogeneity and Macroeconomic Shocks.\" See `subsequent-literature-analysis.md` in this folder for the full analysis." + ] } - }, - "source": [ - "

Paper 1: \"Monetary Policy, Heterogeneity, and the Housing Channel\"
\n", - "

\n", - "
Hedlund, Karahan, Mitman, Ozkan (2017)
\n", - "

\n", - "
Nino Kodua
\n", - "

\n", - "
Johns Hopkins University
\n", - "

\n", - "
February 16, 2020
" - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "slide" - } - }, - "source": [ - "# Overview\n", - "\n", - "* **Research Question: What is the extent to which housing and mortgage debt affect the transmission and effectiveness of monetary policy?** \n", - "* **Channels to consider:** \n", - " * **Direct intertemporal substitution effect**\n", - " * **House price channel**\n", - " * **Liquidity channel**\n", - " * **Cash-flow channel**\n", - " * **Redistribution channel**\n", - "* **HANK model with nominal rigidities and a frictional housing market** \n", - "\n" - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "slide" - } - }, - "source": [ - "# Households\n", - "\n", - "* **Infinitely lived households with uninsurable idiosyncratic labor productivity risk**\n", - "
" - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "subslide" - } - }, - "source": [ - "## Selling decision of a household: \n", - "
\n", - "\n", - " \n", - " \\begin{aligned}\n", - "V_{O W N}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right)=\\max _{\\varsigma_{t} \\in\\{0,1\\}} \\varsigma_{t} V_{S E L L}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right)+\\left(1-\\varsigma_{t}\\right) V_{N S e l l}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right)\n", - " \\end{aligned}\n", - " \n", - "\n", - "\n", - "* ***$\\varsigma_{t}$ - Mortgage initiation cost;*** \n", - "* ***$M_{t}$ - Mortgage size;*** \n", - "* ***$h_{t}$ - House size;*** \n", - "* ***$z_{t}$ - Idiosyncratic labor productivity;***\n", - "\n" - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "subslide" - } - }, - "source": [ - "## A household wanting to sell the house chooses a list price ${x_{s}}$\n", - "
\n", - "\n", - " \n", - "\\begin{aligned} \n", - " V_{S E L L}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right) &=\\max _{x_{s t}}-\\xi+\\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right) V_{N O w n}^{t}\\left(a_{t}+x_{s t}-M_{t}, z_{t}\\right) \\\\ &+\\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right) V_{N S e l l}\\left(a_{t}, M_{t}, h_{t}, z_{t}\\right) \n", - " \\end{aligned}\n", - " \n", - " \n", - "\n", - "* ***$\\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right)$ - Probability of a meeting between a real estate broker and a seller;***\n", - "* ***$\\theta_{t}\\left(x_{s}, h\\right)$ - tightness of the submarket for house size $h$ and a price ${x_{s}}$***\n", - "* ***$\\xi$ - utility cost if homeowner tries but fails to sell the house***\n", - "
\n", - "\n", - "* **Free entry condition for brokers:**\n", - "\n", - " \n", - "\\begin{aligned} \\kappa h=\\overbrace{\\alpha_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right)}^{\\text {prob of match }} \\overbrace{\\left(p_{t}^{H} h-x_{s}\\right)}^{\\text {broker revenue }}\\end{aligned}\n", - " \n", - " \n", - "\n", - "\n", - "## Buying decision of a household who does not own a house (recently sold or never owned)\n", - "
\n", - "\n", - " \n", - "\\begin{aligned} \n", - "V_{N O w n}^{t}\\left(a_{t}, z_{t}\\right)=\\max _{B u y_{t} \\in\\{0,1\\}} B u y_{t} V_{B u y}^{t}\\left(a_{t}, z_{t}\\right)+\\left(1-B u y_{t}\\right) V_{R e n t}^{t}\\left(a_{t}, z_{t}\\right)\n", - "\\end{aligned}\n", - " \n", - " " - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "subslide" - } - }, - "source": [ - "## Household who buys a house\n", - "
\n", - "\n", - " \n", - "\\begin{aligned} \n", - " V_{B u y}^{t}\\left(a_{t}, z_{t}\\right)=\\max _{h_t, M_{t+1}, b_{t+1}, c_{t}, l_{t} \\geq 0} u\\left(c_{t}, h_{t}, l_{t}\\right)+\\beta_{L} \\mathbb{E}\\left[V_{o w n}^{t+1}\\left(a_{t+1}, M_{t+1}, h_{t+1}, z_{t+1}\\right)\\right]\\end{aligned} \n", - "\\begin{aligned} s.t. P_{t} c_{t}+q_{t}^{B} b_{t+1}+p_{t}^{H} h_{t} & \\leq a_{t}+q_{m t}^{0} M_{t+1} \\\\ a_{t+1} &=P_{t+1} w_{t+1} z_{t+1} l_{t+1}+b_{t+1} \\end{aligned} \n", - " \n", - " \n", - "\n", - "\n", - "* **involves decisions of house price, mortgage debt payment, bond holdings, consumption and labor supply** \n", - "* **Banks issue long-term, adjustable rate mortgage contracts.** \n", - " * **Borrower received nominal resources $q_{m t}^{0} M_{t+1}$ ($q_{m t}^{0}$ - mortgage price at origination).**\n", - " * **Interest rate on the loan $r_{m t}$ adjusts each period:** \n", - " \n", - " \\begin{aligned}1+r_{m t}=\\underbrace{(1+\\phi)}_{\\text {spread }} \\underbrace{\\left(1+r_{t}\\right)\\left(1+\\pi_{t}\\right)}_{\\text {nominal risk-free rate }}\\end{aligned} \n", - " \n", - "\n", - "\n", - "## Household who rents a house\n", - "
\n", - "\n", - " \n", - "\\begin{aligned} \n", - "V_{\\text {Rent }}^{t}\\left(a_{t}, z_{t}\\right)=\\max _{b_{t+1}, s_{t}, c_{t}, l_{t} \\geq 0} u\\left(c_{t}, h_{t}, l_{t}\\right)+\\beta_{L} \\mathbb{E}\\left[V_{N O w n}^{t+1}\\left(a_{t+1}, z_{t+1}\\right)\\right]\n", - "\\end{aligned} \n", - "\\begin{aligned} s.t. P_{t} c+q_{t}^{B} b_{t+1}+P_{t} r_{s} s_{t} & \\leq a_{t} \\\\ s_{t} & \\leq \\bar{s} \\\\ a_{t+1} &=P_{t+1} w_{t+1} z_{t+1} l_{t+1}+b_{t+1} \\end{aligned}\n", - " \n", - " \n", - "
\n", - "\n", - "* **$s_t$ - service flow from renting a house**" - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "slide" - } - }, - "source": [ - "## Mortgages and Banks - two types of risks when issuing loans\n", - "\n", - "**1. Borrowers default - foreclosure**\n", - " * **Bank sells the repossessed house (REO)** \n", - " * **in a frictional decentralized housing market as individual sellers to**\n", - " * **incurs a loss $\\gamma^{ROE}$**\n", - " * **Value to banks of repossessing a house size $h$:** \n", - " \n", - " \n", - " \n", - " \\begin{aligned} J_{R E O}^{t}(h)=R_{R E O}^{t}(h)-\\eta h+\\frac{1}{1+r_{t+1}} J_{R E O}^{t+1}(h)\n", - " \\end{aligned}\n", - " \n", - " \n", - " \n", - "\n", - " \n", - "\\begin{aligned} R_{R E O}^{t}(h)=\\max \\left\\{0, \\max _{x_{s} \\geq 0} \\tilde{p}_{t}\\left(\\theta_{t}\\left(x_{s}, h\\right)\\right)\\left[\\left(1-\\gamma^{R E O}\\right) x_{s}-\\left(-\\eta h+\\frac{1}{1+r_{t+1}} J_{R E O}^{t+1}(h)\\right)\\right]\\right\\}\n", - " \\end{aligned}\n", - " \n", - " \n", - " \n", - "* ***$\\eta$ - the cost of holding onto the house (maintenance, property taxes, etc.)*** \n", - "* ***$R_{R E O}^{t}(h)$ - the option value of trying to sell the house in period $t$***\n", - "\n", - "\n", - " \n", - "**2. Prepayment and refinancing the loan by households**\n", - " \n", - "\n" - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "subslide" - } - }, - "source": [ - "## Mortgages and Banks - two types of risks when issuing loans\n", - "
\n", - "\n", - "* **Banks take these risks into account and determine the mortgage price $q_{m t}^{0}$ accordingly:**\n", - "\n", - "
\n", - " \n", - " \n", - " \\begin{aligned} q_{m t}\\left(M_{t+1}, b_{t+1}, h_{t}, z_{t}\\right) M_{t+1}=\\frac{1}{\\left(1+r_{m t}\\right)} \\mathbb{E}\\{\\overbrace{\\tilde{p}_{t+1}\\left(\\theta_{t+1}\\left(x_{s t+1}, h_{t}\\right)\\right) M_{t+1}}^{\\text {sell }+\\text { repay }}+\\overbrace{\\left[1-\\tilde{p}_{t+1}\\left(\\theta_{t+1}\\left(x_{s t+1}, h_{t}\\right)\\right)\\right]}^{\\text {no sale (do not try } / \\text { fail })}\n", - "\\times[\\underbrace{d_{t+1} \\min \\left\\{P_{t+1} J_{R E O}(h), M_{t+1}\\right\\}}_{\\text {default + repossession }}+\\operatorname{Refi}_{t+1} M_{t+1}\n", - "\\left.\\left.+\\left(1-d_{t+1}-\\operatorname{Refi}_{t+1}\\right)(\\underbrace{M_{t+1}-\\frac{M_{t+2}}{\\left(1+r_{m t+1}\\right)}}_{\\text {borrower payment net of servicing costs }}+\\underbrace{q_{m t+1}\\left(M_{t+2}, b_{t+2}, h_{t}, z_{t+1}\\right) M_{t+2}}_{\\text {continuation value of new } M^{\\prime \\prime}})\\right]\\right\\}\n", - " \\end{aligned}\n", - " \n", - " " - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "subslide" - } - }, - "source": [ - "## Additional Ingredients: \n", - "
\n", - "\n", - " \n", - "* **To close the model:**\n", - " * **Government sponsored enterprises**\n", - " * **provide insurance to the banks against the default risk of mortgages**\n", - " * **Intermediate goods produces - monopolistically competitive**\n", - " * **A representative final goods produce**\n", - " * **intermediate goods into the final consumption good**\n", - " * **Government - sets fiscal policy**\n", - " * **Monetary authority - sets the nominal interest rate**\n", - " " - ] - }, - { - "cell_type": "markdown", - "metadata": { - "slideshow": { - "slide_type": "slide" + ], + "metadata": { + "celltoolbar": "Slideshow", + "kernelspec": { + "display_name": ".venv-darwin-arm64", + "language": "python", + "name": "python3" + }, + "language_info": { + "codemirror_mode": { + "name": "ipython", + "version": 3 + }, + "file_extension": ".py", + "mimetype": "text/x-python", + "name": "python", + "nbconvert_exporter": "python", + "pygments_lexer": "ipython3", + "version": "3.12.7" } - }, - "source": [ - "## Results:\n", - "\n", - "* **The calibrated steady state of the model** \n", - " * **matches heterogeneity in home ownership, leverage and MPC across households**\n", - " * **MPC differs between low- and high-loan-to-value (LTV) households)**\n", - " * **the US microeconomic & macroeconomic data over the past 20 years**\n", - "* **Effectiveness of the monetary policy depends on mortgage debt distribution:**\n", - " * **In a high-LTV economy expansionary monetary policy is more effective**" - ] - } - ], - "metadata": { - "celltoolbar": "Slideshow", - "kernelspec": { - "display_name": "Python 3", - "language": "python", - "name": "python3" }, - "language_info": { - "codemirror_mode": { - "name": "ipython", - "version": 3 - }, - "file_extension": ".py", - "mimetype": "text/x-python", - "name": "python", - "nbconvert_exporter": "python", - "pygments_lexer": "ipython3", - "version": "3.7.3" - } - }, - "nbformat": 4, - "nbformat_minor": 2 -} + "nbformat": 4, + "nbformat_minor": 2 +} \ No newline at end of file diff --git a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/MP-Housing-Channel.bib b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/MP-Housing-Channel.bib new file mode 100644 index 00000000..12f97df8 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/MP-Housing-Channel.bib @@ -0,0 +1,316 @@ +@ARTICLE{Auclert2019-ch, + title = "Monetary policy and the redistribution channel", + author = "Auclert, Adrien", + journal = "Am. Econ. Rev.", + publisher = "American Economic Association", + volume = 109, + number = 6, + pages = "2333--2367", + abstract = "This paper evaluates the role of redistribution in the + transmission mechanism of monetary policy to consumption. Three + channels affect aggregate spending when winners and losers have + different marginal propensities to consume: an earnings + heterogeneity channel from unequal income gains, a Fisher channel + from unexpected inflation, and an interest rate exposure channel + from real interest rate changes. Sufficient statistics from + Italian and US data suggest that all three channels are likely to + amplify the effects of monetary policy. (JEL E21, E31, E43, E52)", + month = jun, + year = 2019, + language = "en" +} + +@ARTICLE{Attanasio2009-tp, + title = "Booms and busts: Consumption, house prices and expectations", + author = "Attanasio, Orazio P and Blow, Laura and Hamilton, Robert and + Leicester, Andrew", + journal = "Economica", + publisher = "Wiley", + volume = 76, + number = 301, + pages = "20--50", + abstract = "Over much of the past 25 years, house price and consumption + growth have been closely synchronized. Three main hypotheses for + this have been proposed: increases in house prices raise + household wealth and so their consumption; house price growth + reduces credit constraints by increasing the collateral available + to homeowners; and house prices and consumption are together + influenced by common factors. Using microeconomic data, we find + that the relationship between house prices and consumption is + stronger for younger than older households, contradicting the + wealth channel. We suggest that common causality has been the + most important factor linking house prices and consumption.", + month = feb, + year = 2009, + language = "en" +} + +@ARTICLE{Bansal2004-uo, + title = "Risks for the Long Run: A potential resolution of asset pricing + puzzles", + author = "Bansal, Ravi and Yaron, Amir", + journal = "J. Finance", + publisher = "Wiley", + volume = 59, + number = 4, + pages = "1481--1509", + abstract = "ABSTRACTWe model consumption and dividend growth rates as + containing (1) a small long‐run predictable component, and (2) + fluctuating economic uncertainty (consumption volatility). These + dynamics, for which we provide empirical support, in conjunction + with Epstein and Zin's (1989) preferences, can explain key asset + markets phenomena. In our economy, financial markets dislike + economic uncertainty and better long‐run growth prospects raise + equity prices. The model can justify the equity premium, the + risk‐free rate, and the volatility of the market return, + risk‐free rate, and the price–dividend ratio. As in the data, + dividend yields predict returns and the volatility of returns is + time‐varying.", + month = aug, + year = 2004, + language = "en" +} + +@ARTICLE{Corbae2015-xj, + title = "Leverage and the foreclosure crisis", + author = "Corbae, Dean and Quintin, Erwan", + journal = "J. Polit. Econ.", + publisher = "University of Chicago Press", + volume = 123, + number = 1, + pages = "1--65", + abstract = "How much of the recent rise in foreclosures can be explained by + the large number of high-leverage mortgage contracts originated + during the housing boom? We present a model where heterogeneous + households select from a set of mortgage contracts and choose + whether to default on their payments given realizations of income + and housing price shocks. The set of mortgage contracts consists + of loans with high downpayments and loans with low downpayments. + We run an experiment where the use of low downpayment loans is + initially limited by payment-to-income requirements but then + becomes unrestricted for 8 years. The relaxation of approval + standards causes homeownership rates, high-leverage originations + and the frequency of high interest rate loans to rise much like + they did in the US between 1998-2006. When home values fall by + the magnitude observed in the US from 2007-08, default rates + increase by over 180\% as they do in the data. Two distinct + counterfactual experiments where approval standards remain the + same throughout suggest that the increased availability of + high-leverage loans prior to the crisis can explain between 40\% + to 65\% of the initial rise in foreclosure rates. Furthermore, we + run policy experiments which suggest that recourse could have had + significant dampening effects during the crisis.", + month = feb, + year = 2015, + language = "en" +} + +@ARTICLE{Di-Maggio2014-xm, + title = "Monetary policy pass-through: Household consumption and voluntary + deleveraging", + author = "Di Maggio, Marco and Kermani, Amir and Ramcharan, Rodney", + journal = "SSRN Electron. J.", + publisher = "Elsevier BV", + abstract = "Do households bene…t from expansionary monetary policy? We + investigate how indebted households'consumption and saving + decisions are aected by anticipated changes in monthly interest + payments. We focus on borrowers with adjustable rate mortgages + originated between 2005 and 2007 featuring an automatic reset of + the interest rate after …ve years. The monthly payment due from + the average borrower falls by 52 percent ($900) upon reset, + resulting in an increase in disposable income totaling tens of + thousands of dollars over the remaining life of the mortgage. We + uncover three patterns. First, the average household increases + monthly car purchases by 40 percent ($150) upon reset. Second, + this expansionary eect is attenuated by the borrowers'voluntary + deleveraging, as a signi…cant fraction of the increased income is + deployed to accelerate debt repayment. Third, the marginal + propensity to consume is signi…cantly higher for low income and + underwater borrowers. To complement these household-level + …ndings, we employ county-level data to provide evidence that + consumption responded more to a reduction in short-term interest + rates in counties with a larger fraction of adjustable rate + mortgage debt. Our results shed light on the income channel of + monetary policy as well as the role of debt rigidity in reducing + the eectiveness of monetary policy.", + year = 2014, + language = "en" +} + +@INPROCEEDINGS{Hedlund2017-lb, + title = "Monetary policy, heterogeneity, and the housing channel", + author = "Hedlund, Aaron and Karahan, Fatih and Mitman, Kurt and Ozkan, + Serdar", + booktitle = "2017 Meeting Papers", + volume = 1610, + pages = 6, + abstract = "In this section, we develop a heterogeneous agents New of the + housing channel in the transmission of monetary policy, we + include the following key ingredients: (1) a frictional housing", + year = 2017, + language = "en" +} + +@ARTICLE{Blundell2008-qj, + title = "Consumption inequality and partial insurance", + author = "Blundell, Richard and Pistaferri, Luigi and Preston, Ian", + journal = "Am. Econ. Rev.", + publisher = "American Economic Association", + volume = 98, + number = 5, + pages = "1887--1921", + month = nov, + year = 2008 +} + +@ARTICLE{Browning2013-wo, + title = "Housing wealth and consumption: A micro panel study", + author = "Browning, Martin and Gørtz, Mette and Leth-Petersen, Søren", + journal = "Econ. J. (London)", + publisher = "Oxford University Press (OUP)", + volume = 123, + number = 568, + pages = "401--428", + abstract = "There is strong evidence that house prices and consumption are + synchronised. There is, however, disagreement over the causes of + this link. This study examines if there is a wealth effect of + house prices on consumption. Using a household‐level panel data + set with information about house ownership, income, wealth and + demographics for a large sample of the Danish population in the + period 1987–96, we model the dependence of the growth rate of + total household expenditure with unanticipated innovations to + house prices. Controlling for factors related to competing + explanations, we find little evidence of a housing wealth effect.", + month = may, + year = 2013, + language = "en" +} + +@ARTICLE{Campbell2007-qe, + title = "How do house prices affect consumption? Evidence from micro data", + author = "Campbell, John Y and Cocco, João F", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 54, + number = 3, + pages = "591--621", + abstract = "Housing is a major component of wealth. Since house prices + fluctuate considerably over time, it is important to understand + how these fluctuations affect households’ consumption decisions. + Rising house prices may stimulate consumption by increasing + households’ perceived wealth, or by relaxing borrowing + constraints. This paper investigates the response of household + consumption to house prices using UK micro data. We estimate the + largest effect of house prices on consumption for older + homeowners, and the smallest effect, insignificantly different + from zero, for younger renters. This finding is consistent with + heterogeneity in the wealth effect across these groups. In + addition, we find that regional house prices affect regional + consumption growth. Predictable changes in house prices are + correlated with predictable changes in consumption, particularly + for households that are more likely to be borrowing constrained, + but this effect is driven by national rather than regional house + prices and is important for renters as well as homeowners, + suggesting that UK house prices are correlated with aggregate + financial market conditions.", + month = apr, + year = 2007, + language = "en" +} + +@ARTICLE{Carroll2011-jc, + title = "How large are housing and financial wealth effects? A new + approach", + author = "Carroll, Christopher D and Otsuka, Misuzu and Slacalek, Jiri", + journal = "J. Money Credit Bank.", + publisher = "Wiley", + volume = 43, + number = 1, + pages = "55--79", + month = feb, + year = 2011, + language = "en" +} + +@ARTICLE{Case2011-bd, + title = "Wealth effects revisited 1978-2009", + author = "Case, Karl E and Quigley, John M and Shiller, Robert J", + journal = "SSRN Electron. J.", + publisher = "Elsevier BV", + abstract = "We re-examine the link between changes in housing wealth, + financial wealth, and consumer spending. We extend a panel of + U.S. states observed quarterly during the seventeen-year period, + 1982 through 1999, to the thirty-one year period, 1978 through + 2009. Using techniques reported previously, we impute the + aggregate value of owner-occupied housing, the value of financial + assets, and measures of aggregate consumption for each of the + geographic units over time. We estimate regression models in + levels, first differences and in error-correction form, relating + per capita consumption to per capita income and wealth. We find a + statistically significant and rather large effect of housing + wealth upon household consumption. This effect is consistently + larger than the effect of stock market wealth upon consumption. + This reinforces the conclusions reported in our previous + analysis. In contrast to our previous analysis, however, we do + find -- based on data which include the recent volatility in + asset markets -- that the effects of declines in housing wealth + in reducing consumption are at least as large as the effects of + increases in housing wealth in increasing the course of household + consumption.", + year = 2011, + language = "en" +} + +@ARTICLE{Challe2015-dq, + title = "Precautionary saving and aggregate demand", + author = "Challe, Edouard and Matheron, Julien and Ragot, Xavier and + Rubio-Ramirez, Juan Francisco", + journal = "SSRN Electron. J.", + publisher = "Elsevier BV", + abstract = "We formulate and estimate a tractable macroeconomic model with + time-varying precautionary savings. We argue that the latter + affect aggregate fluctuations via two main channels: a + stabilizing aggregate supply effect working through the supply of + capital; and a destabilizing aggregate demand effect generated by + a feedback loop between unemployment risk and consumption demand. + Using the estimated model to measure the contribution of + precautionary savings to the propagation of recent recessions, we + find strong aggregate demand effects during the Great Recession + and the 1990–1991 recession. In contrast, the supply effect at + least offset the demand effect during the 2001 recession.", + year = 2015, + language = "en" +} + +@ARTICLE{Blundell2016-he, + title = "Consumption inequality and family labor supply", + author = "Blundell, Richard and Pistaferri, Luigi and Saporta-Eksten, Itay", + journal = "Am. Econ. Rev.", + publisher = "American Economic Association", + volume = 106, + number = 2, + pages = "387--435", + abstract = "We examine the link between wage and consumption inequality using + a life-cycle model incorporating consumption and family labor + supply decisions. We derive analytical expressions for the + dynamics of consumption, hours, and earnings of two earners in + the presence of correlated wage shocks, nonseparability, + progressive taxation, and asset accumulation. The model is + estimated using panel data for hours, earnings, assets, and + consumption. We focus on family labor supply as an insurance + mechanism and find strong evidence of smoothing of permanent wage + shocks. Once family labor supply, assets, and taxes are properly + accounted for there is little evidence of additional insurance. + (JEL D12, D14, D91, J22, J31)", + month = feb, + year = 2016, + language = "en" +} + +@ARTICLE{Calomiris2009-pt, + title = "The (mythical?) housing wealth effect", + author = "Calomiris, Charles W and Longhofer, Stanley D and Miles, William", + journal = "SSRN Electron. J.", + publisher = "Elsevier BV", + year = 2009 +} diff --git a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/prior-literature.md b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/prior-literature.md new file mode 100644 index 00000000..b0f6e614 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/prior-literature.md @@ -0,0 +1,15 @@ +# Prior Literature Summary: Monetary Policy, Heterogeneity, and the Housing Channel + +## The papers my ballpark paper cites + +The HKM&O (2017) paper sits on several strands of prior work. **Housing, wealth, and consumption:** Micro evidence showed that house prices affect spending in different ways for different households—e.g. Campbell and Cocco (2007) and Case, Quigley, and Shiller (2011) found important housing-wealth or collateral effects, while Attanasio et al. (2009) and Browning et al. (2013) stressed collateral/credit and common factors rather than a pure wealth effect. That heterogeneity in who responds to house prices and why is central to a “housing channel” of policy. **Heterogeneity and monetary transmission:** Work on hand-to-mouth and “wealthy hand-to-mouth” (Kaplan, Violante, and Weidner 2014), partial consumption insurance (Blundell, Pistaferri, and Preston 2008; Kaplan and Violante 2010), and the redistribution channel of monetary policy (Auclert 2019; Di Maggio, Kermani, and Ramcharan 2014; Gornemann, Kuester, and Nakajima 2014) showed that differences in marginal propensities to consume and in exposure to interest rates and inflation are key for how monetary policy affects aggregate demand. **Housing and mortgages in general equilibrium:** Models with heterogeneous households, illiquid housing, default, and foreclosures—e.g. Jeske, Krueger, and Mitman (2013), Hedlund (2016), Corbae and Quintin (2015), and Favilukis (2010)—and “balance sheet recession” ideas (Huo and Ríos-Rull 2013) provided the tools to embed a frictional housing market and mortgage contracts in a macro model. Together, this literature gave the ingredients HKM&O use: a heterogeneous-agent framework where housing is illiquid and collateral matters, and where monetary policy works partly through the housing channel and redistribution, which their paper then formalizes in a single model of “monetary policy, heterogeneity, and the housing channel.” + +## Key foundational papers + +- **Jeske, Krueger & Mitman (2013)**: Same author (Mitman), same theme—heterogeneous-agent model with housing, mortgages, and default; direct methodological and topical precursor. +- **Hedlund (2016)**: Same author (Hedlund)—illiquid housing, debt, and foreclosures; supplies the “frictional housing” block and cyclical housing/debt dynamics that HKM&O build on. +- **Kaplan & Violante (2010, 2014)**: Consumption insurance and “wealthy hand-to-mouth”; establish that MPC heterogeneity is central for aggregate consumption and policy, so the housing channel matters precisely because of this heterogeneity. +- **Blundell, Pistaferri & Preston (2008)**: BPP partial-insurance framework; empirical and conceptual base for the consumption-insurance/heterogeneity literature that Kaplan–Violante and HKM&O build on. +- **Campbell & Cocco (2007)**: Micro evidence on how house prices affect consumption by age/tenure; canonical support for a housing channel and for heterogeneity in that response. +- **Favilukis (2010)**: Early heterogeneous-agent GE model with housing wealth, housing finance, and limited risk-sharing; methodological precedent for putting housing in a macro model. +- **Di Maggio, Kermani & Ramcharan (2014)**: Direct evidence on monetary policy pass-through to consumption via mortgages (e.g. ARM resets) and higher MPC for constrained borrowers; empirical counterpart to the mechanism in HKM&O. diff --git a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/proposed-revisions.md b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/proposed-revisions.md new file mode 100644 index 00000000..08ce8dd9 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/proposed-revisions.md @@ -0,0 +1,31 @@ +# Proposed Revisions: Monetary Policy, Heterogeneity, and the Housing Channel + +## Prior Literature section to add + +**Place after the Overview slide and before the Households slide.** + +# Prior Literature + +The HKM&O (2017) paper sits on several strands of prior work. **Housing, wealth, and consumption:** Micro evidence showed that house prices affect spending in different ways for different households—e.g. Campbell and Cocco (2007) and Case, Quigley, and Shiller (2011) found important housing-wealth or collateral effects, while Attanasio et al. (2009) and Browning et al. (2013) stressed collateral/credit and common factors rather than a pure wealth effect. That heterogeneity in who responds to house prices and why is central to a "housing channel" of policy. **Heterogeneity and monetary transmission:** Work on hand-to-mouth and "wealthy hand-to-mouth" (Kaplan, Violante, and Weidner 2014), partial consumption insurance (Blundell, Pistaferri, and Preston 2008; Kaplan and Violante 2010), and the redistribution channel of monetary policy (Di Maggio, Kermani, and Ramcharan 2014; Gornemann, Kuester, and Nakajima 2014) showed that differences in marginal propensities to consume and in exposure to interest rates and inflation are key for how monetary policy affects aggregate demand. **Housing and mortgages in general equilibrium:** Models with heterogeneous households, illiquid housing, default, and foreclosures—e.g. Jeske, Krueger, and Mitman (2013), Hedlund (2016), Corbae and Quintin (2015), and Favilukis (2010)—and "balance sheet recession" ideas (Huo and Ríos-Rull 2013) provided the tools to embed a frictional housing market and mortgage contracts in a macro model. Together, this literature gave the ingredients HKM&O use: a heterogeneous-agent framework where housing is illiquid and collateral matters, and where monetary policy works partly through the housing channel and redistribution, which their paper then formalizes in a single model. + +**Key foundational papers:** Jeske, Krueger & Mitman (2013); Hedlund (2016); Kaplan & Violante (2010, 2014); Blundell, Pistaferri & Preston (2008); Campbell & Cocco (2007); Favilukis (2010); Di Maggio, Kermani & Ramcharan (2014). See `prior-literature.md` in this folder for details. + +--- + +## Subsequent Literature section to add + +**Place after the Results slide (at the end of the notebook).** + +# Subsequent Literature + +Work that cites HKM&O has taken several directions. The **refinancing and cash-flow channel** has been tested with regional and micro data: Beraja, Fuster, Hurst, and Vavra (QJE) use regional variation in mortgage structure and refinancing exposure; Wong ties the mechanism to population aging; and Cloyne, Ferreira, and Surico (REStud) provide direct evidence on how household debt alters the transmission of monetary policy. The literature has also embraced **micro heterogeneity for macro policy**—Kaplan and Violante (JEP) synthesize how heterogeneity in liquidity, debt, and MPC shapes the effects of monetary and other shocks—and **housing, credit, and macroprudential policy** (Funke et al., Koeniger et al., Pidkuyko). Central banks (Sveriges Riksbank, IMF) have framed the open question of whether higher household indebtedness has weakened monetary policy transmission. Open gaps remain: optimal monetary policy and welfare in HA-housing models; behavior at the ZLB and under unconventional policy; renters and tenure choice; structural estimation; and long-run distributional effects. + +**Most important subsequent papers:** Beraja et al. (QJE), "Regional Heterogeneity and the Refinancing Channel of Monetary Policy"; Cloyne et al. (REStud), "Monetary Policy when Households have Debt"; Kaplan & Violante (JEP), "Microeconomic Heterogeneity and Macroeconomic Shocks." See `subsequent-literature-analysis.md` in this folder for the full analysis. + +--- + +## Other improvements + +- **Overview:** Add a **Contribution** bullet: *"First structural HA-NK model that jointly has heterogeneous households, a frictional housing market and mortgages, and nominal rigidities, to analyze how monetary policy transmits through the housing channel."* +- **Slideshow:** If using Jupyter slideshow, set `slide_type: "slide"` (or equivalent) on the Prior Literature and Subsequent Literature cells so they appear as distinct slides. +- **See also (optional):** At the end of the notebook, add a short line pointing to `prior-literature.md`, `subsequent-literature-analysis.md`, and `MP-Housing-Channel.bib` for full references and analysis. diff --git a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/subsequent-literature-analysis.md b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/subsequent-literature-analysis.md new file mode 100644 index 00000000..ca7de39b --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/subsequent-literature-analysis.md @@ -0,0 +1,19 @@ +# Subsequent Literature Analysis: Monetary Policy, Heterogeneity, and the Housing Channel + +## Papers that cite my ballpark paper + +I found 18 papers in LitMaps (16 unique after removing duplicate entries). + +## What the subsequent literature tells us + +Several clear research directions emerged from work that cites HKM&O. First, the **refinancing and cash-flow channel** was taken to data: Beraja, Fuster, Hurst, and Vavra (QJE) use regional variation in mortgage structure and refinancing exposure to test the channel; Wong ties the same mechanism to population aging; and Cloyne, Ferreira, and Surico (REStud) provide direct evidence on how household debt alters the transmission of monetary policy. So one major direction is **empirical validation and cross-sectional (regional, demographic) testing** of the mechanism. Second, the literature has embraced **micro heterogeneity for macro policy**: Kaplan and Violante (JEP) synthesize how heterogeneity in liquidity, debt, and MPC shapes the aggregate effects of monetary and other shocks; Bunn et al. document asymmetric consumption responses to income shocks. A third direction is **housing, credit, and macroprudential policy**—Funke et al., Koeniger et al., and Pidkuyko connect the housing channel to financial stability and macroprudential tools. Central banks (Sveriges Riksbank, IMF) have framed the open question of whether **higher household indebtedness has weakened** monetary policy transmission, and Hendry and Muellbauer discuss the place of HA models in policy institutions. + +Cutting-edge topics include regional and micro identification of the cash-flow channel, the interaction of the housing channel with macroprudential and credit policy, and the debate over whether high debt dampens or redistributes the effects of monetary policy. Open gaps remain: **optimal monetary policy** and welfare in HA-housing models; behavior at the **ZLB** and under **unconventional policy**; **renters** and tenure choice; **housing supply** and geography; **structural estimation** of HA-housing models; and **long-run distributional** effects of policy that works through the housing channel. + +## Most important subsequent papers + +1. **Beraja, Fuster, Hurst & Vavra (QJE 2018/2019), "Regional Heterogeneity and the Refinancing Channel of Monetary Policy"**: Brings HKM&O’s refinancing channel to regional data and shows differential consumption responses by mortgage exposure; sets the template for empirical work on the housing/refinancing channel and for regional heterogeneity in transmission. + +2. **Cloyne, Ferreira & Surico (REStud 2020), "Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism"**: Provides direct micro/aggregate evidence on how household debt changes the transmission of monetary policy; central to the “debt and transmission” debate and policy relevance. + +3. **Kaplan & Violante (JEP 2018), "Microeconomic Heterogeneity and Macroeconomic Shocks"**: Canonical synthesis of why micro heterogeneity (liquidity, debt, MPC) matters for macro shocks and policy; frames how the field thinks about HA models and the housing/debt channel in a broader agenda. From a65907a70241c4a30a0a8f6fc403526dd334be18 Mon Sep 17 00:00:00 2001 From: jliu226 Date: Tue, 10 Feb 2026 13:17:13 -0500 Subject: [PATCH 2/3] Apply HKMOHousingChannelMP notebook edits from master to feature branch --- .../HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb | 4 ++-- 1 file changed, 2 insertions(+), 2 deletions(-) diff --git a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb index bcf28c31..4a3f7627 100644 --- a/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb +++ b/models/We-Would-Like-In-Econ-ARK/HKMOHousingChannelMP/HKMOHousingChannelMP.ipynb @@ -12,7 +12,7 @@ "

\n", "
Hedlund, Karahan, Mitman, Ozkan (2017)
\n", "

\n", - "
Nino Kodua
\n", + "
Nino Kodua & Jianhong Liu
\n", "

\n", "
Johns Hopkins University
\n", "

\n", @@ -315,4 +315,4 @@ }, "nbformat": 4, "nbformat_minor": 2 -} \ No newline at end of file +} From cddaa0d9aea20ce64f709812772330969b735b70 Mon Sep 17 00:00:00 2001 From: jliu226 Date: Tue, 10 Feb 2026 13:19:53 -0500 Subject: [PATCH 3/3] Ignore local anaconda_projects artifacts Co-authored-by: Cursor --- .gitignore | 3 +++ 1 file changed, 3 insertions(+) diff --git a/.gitignore b/.gitignore index 89d6ff5f..d94a0864 100644 --- a/.gitignore +++ b/.gitignore @@ -112,3 +112,6 @@ env-*/ # Mac .DS_Store + +# Local editor / Anaconda project artifacts +anaconda_projects/