SUBPRIME MORTGAGES AND LENDING BUBBLES
Özet
We consider a model with two types of households: the poor with no initial endowment
and the rich with positive endowment, and two types of assets: properties in a poor
area and properties in a rich area. In the model, poor agents need credit to buy an asset,
whereas the rich can draw from their endowment. We show that credit-fueled housing
bubbles sometimes may improve welfare, making the poorer individuals better off.
More precisely, there exist two types of equilibria in both property markets: one is a
bubble equilibrium, and the other is an equilibrium where asset prices are stable over
time. While the poor always obtain a positive surplus in the bubble equilibrium, this is
not necessarily true for the rich. Our results suggest that there may be scope for market
interventions aimed at sustaining the value of assets held by credit-constrained agents
after the burst of a credit bubble.
