Asymmetric behaviour of collateral constraint: applications on the Czech economy
| Authors | |
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| Year of publication | 2015 |
| Type | Article in Proceedings |
| Conference | Proceedings of 33nd International Conference Mathematical Methods in Economics |
| MU Faculty or unit | |
| Citation | |
| Web | Conference proceedings |
| Field | Economy |
| Keywords | occasionally binding constraint; asymmetric behaviour; DSGE model; housing sector |
| Description | This paper analyses influence of asymmetric behaviour of collateral constraint through the lens of the DSGE model with occasionally binding constraint on housing wealth. The Czech economy data show positive but asymmetric behaviour between housing prices and consumption. It can be explained by following mechanism. When the prices of houses fall, the housing wealth decreases, which decreases consumption substantially as constraint on borrowing is binding. On the other hand, rise in house prices increases housing wealth, the constraint becomes slack and consumption increases only slightly. Such mechanism is incorporated into DSGE model that is estimated on data of the Czech economy using Bayesian techniques. The results from model simulation show that the occasionally binding constraint is able to replicate asymmetric behaviour of house prices and consumption found in the data. |
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