This paper proposes a novel explanation for why foreign currency denominated loans to households have become so popular in some emerging economies. Our argument is based on what we call the debt limit channel, which arises when multi-period contracts are offered against collateral that established newly acquired assets. Whenever difference between domestic and interest rates positive, this effe...

The aim of this paper is twofold. First, I study how the proportion of …xed and variable-rate mortgages in an economy can a¤ect the way shocks are propagated. Second, I analyze optimal implementable simple monetary policy rules and the welfare implications of this proportion. I develop and solve a New Keynesian dynamic stochastic general equilibrium model that features a housing market and a gr...

We study mortgage design features aimed at stabilizing the macroeconomy. model overlapping generations of borrowers and an infinitely lived risk-averse representative lender. Mortgages are priced using equilibrium pricing kernel derived from lender's endogenous consumption. consider adjustable-rate with option that during recessions allows to pay only interest on their loan extend its maturity....

Texas is the only US state that limits home equity borrowing to 80 percent of home value. This paper exploits this policy discontinuity around the Texas’ interstate borders and uses a multidimensional regression discontinuity design framework to find that limits on home equity borrowing in Texas lowered the likelihood of mortgage default by about 1 percentage point for all mortgages and 2-4 per...

This paper analyzes credit risk for residential mortgages. Estimates of the hazard of mortgage default are presented, based upon a large sample of conventional loans issued in the late 1970s. Mean returns are estimated, together with variances and covariances for various loan-to-value (LTV) ratios and geographic groups. These results are then used to analyze capital requirements for institution...