fiscal and monetary policy

Consumption Dynamics, Housing Collateral and Stabilisation Policies: A Way Forward for Policy Co-Ordination?

We decompose aggregate consumption of heterogeneous consumers by modelling both savers and their links to collateral constrained borrowers through a bank which prices credit risk. Savers own both firms and the commercial bank while borrowers require loans from the commercial bank to effect their consumption plans. The bank lends at a premium over the interest rate on central bank money in proportion to the riskiness of loans, the demand for loans, the asset price and the quantity of housing collateral.