Citation

Discussion Paper Details

Please find the details for DP10866 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Structural Demand Estimation with Borrowing Constraints

Author(s): Amine Ouazad and Romain Ranci�re

Publication Date: October 2015

Keyword(s): demand estimation, house prices, housing, mortgage credit and segregation

Programme Area(s): International Trade and Regional Economics and Macroeconomics and Growth

Abstract: Structural models of housing or product choice use observed demand to estimate household preferences. However, household demand may be partly determined by borrowing constraints, limiting households? choice set. Such borrowing constraints will differ across locations, households, and years. We put forward a model of neighborhood choice with borrowing constraints that accounts for mortgage credit approval rates. We estimate the model's parameters using micro-level data on households, property transactions and mortgage applications for the San Francisco Bay. Approval rates vary significantly both across households and across neighborhoods. The model with borrowing constraints yields significantly higher estimated willingness to pay to live close to good schools and in majority-white neighborhoods. The model provides general equilibrium estimates of the impact of a relaxation of lending standards. Between 2000 and 2006, the model provides two out-of-sample predictions: (i)�a compression of the price distribution and (ii)�a decline in black households' exposure to white households. Both predictions are supported by empirical observation.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10866

Bibliographic Reference

Ouazad, A and Ranci�re, R. 2015. 'Structural Demand Estimation with Borrowing Constraints'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10866