The Impact of Macroeconomic Shocks on Household Debt and Housing Prices

Byoung Hoon Seok, Hye Mi You

Research output: Contribution to journalArticlepeer-review


This study investigates the effects of macroeconomic shocks on households debts and house prices, using a two-agent dynamic stochastic general equilibrium(TANK DSGE) model with a loan-to-value ratio constraint. A negative monetary shock increases households’ interest burden, reducing their debts. It also decreases demands for houses among impatient households and entrepreneurs, causing house prices to fall. A negative housing demand shock lowers house prices and hence tightens the borrowing limit of impatient households, inducing them to reduce debts significantly. Lastly, an inflation shock transfers real wealth from patient households to impatient households and entrepreneurs. This effect discourages patient households from purchasing houses, lowering house prices. In the meantime, household debts decline because the central bank increases the policy interest rate in response to the inflation shock, elevating interest burden of impatient households. We find that each of these three macroeconomic shocks reduces household debts, house prices, and the GDP.

Original languageEnglish
Pages (from-to)74-99
Number of pages26
JournalJournal of Economic Theory and Econometrics
Issue number3
StatePublished - Sep 2023

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© 2023, Korean Econometric Society. All rights reserved.


  • house prices
  • household debt
  • macroeconomic
  • shocks Loan-to-value ratio


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