Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

Models

Working paper: Liquidity Constraints in the U.S. Housing Market

We show that U.S. housing wealth is very illiquid despite all the instruments for extracting home equity available to homeowners. We come to this conclusion by studying the implications of liquidity constraints in a quantitative life-cycle model in which we explicitly account for key institutional details of the U.S. housing and mortgage markets. We find that mortgage market frictions that prevent homeowners from tapping into home equity are sizeable and that most homeowners keep their consumption low for precautionary reasons.