Down Payments and the Homeownership Dream: Not Such a Barrier After All?

This paper uses a structural model to quantitatively evaluate whether and under what conditions loose credit constraints are essential to achieving a high homeownership rate. A dichotomy emerges between the short run and long run response to a moderate tightening of credit, with homeownership initially falling before gradually reverting to its original level. When consumption and housing are complements, this long-run stability is robust to larger credit shifts, though the short-run adjustment can be severe.

Money and Credit Redux

We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money can be essential, but then credit is irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for exogenous or endogenous policy and debt limits, secured or unsecured lending, and a general class of pricing mechanisms.

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