Replication files for Household Leverage

Stefano Corradin
stefano.corradin@ecb.europa.eu

January 10, 2014

Folder CPPlusMatlab_Code
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The folder contains the C++ codes that solve the model for a college educated agent for benchmark parameters: mean growth rate of house prices of 1.67% and house price standard deviation of 10%. The code requires as an input the default premium and rent risk premium. The default premium and rent risk premium are provided such that the agent is indifferent between owning with a mortgage and renting at time zero as reported in the tables.   

The folder is structured in sub-folders.

1) BenchParam_College_Tab3_4

This subfolder contains the codes that can be used to replicate Tables 3 and 4 of the paper. The model output is provided in the folder "\BenchParam_College_Tab3_4\mup167vol10" for different values of the loan-to-value ratios (LTV) or the downpayment input parameter. For example, the model is solved for a down payment of 7% in the folder "\BenchParam_College_Tab3_4\mup167vol10\ltv93"

Matlab Files:

- CcodeOutput.m			loads the output and provides the results that are used to fill the columns in the LaTex tables
- MonteCarloSim.m		simulates the model as explained in Appendix A.2 "Model simulation"
- simulatemarkov.m		function of MonteCarloSim.m
- OptDownPayment.m		loads the output of the Monte Carlo simulations averaging the realizations of the indirect utility at the initial house 				price P(0), cash on hand A(0) and initial labor income Li(0) in the first period. The highest average of the realized 					lifetime utility is picked to identify the optimal down payment ω∗.     

2) BenchParam_College_HouseSize_Tab5_6

This subfolder contains the codes that can be used to replicate Tables 5 and 6 of the paper, when the agent is allowed to choose between two different levels of housing in case of default: the current level of housing H and a lower one Hlow that is two-thirds of the current level H. The model output is provided for the optimal downpayment of 7.5% (LTV = 92.5%) provided in Tables 5 and 6 for a college educated agent. 

3) BenchParam_College_CumProbDef_Figure4

The subfolder contains the codes that can be used to generate Figures 4, 5, 8 and 9 of the paper. The codes calculate the cumulative probability of default based on the results stored in the subfolder "BenchParam_College_Tab3_4". The cumulative probability of default is the probabilities of default at monthly intervals cumulatively over time, from the origination to the expiration of the mortgage. For example, the cumulative probability of default at five years, for example, represents the probability at the origination of the loan that the mortgage defaults within the first five years. 



 
