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Federal Reserve Bank of Boston
Working Papers
Housing and debt over the life cycle and over the business cycle
Matteo Iacoviello
Marina Pavan

This paper describes an equilibrium life-cycle model of housing where nonconvex adjustment costs lead households to adjust their housing choice infrequently and by large amounts when they do so. In the cross-sectional dimension, the model matches the wealth distribution; the age profiles of consumption, homeownership, and mortgage debt; and data on the frequency of housing adjustment. In the time-series dimension, the model accounts for the procyclicality and volatility of housing investment, and for the procyclical behavior of household debt.

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Matteo Iacoviello & Marina Pavan, Housing and debt over the life cycle and over the business cycle, Federal Reserve Bank of Boston, Working Papers 09-12, 2009.
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Keywords: Housing ; Mortgage loans
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