UBC Theses and Dissertations
Structural estimation and policy analysis applications in housing and education Abbott, Brant
The first chapter studies the role of mortgage constraints in life-cycle housing decisions. I argue that observed Loan-to-Value (LTV) ratios contradict the view that large down-payments limit home ownership among young households. I estimate a model of life-cycle housing decisions that includes high LTV mortgages using a method of simulated moments. The model closely replicates home ownership rates over the life-cycle, but restricted models with maximum-LTV constraints cannot. Differences in estimated parameters lead to differences in the importance of credit-frictions, family composition and income risk in shaping ownership decisions. The second chapter studies the relationships among housing consumption inequality, credit market frictions and the price of housing in the context of the recent U.S. housing boom. Loosening lending standards, falling interest rates and speculation have all been cited as potential causes of the increase in the average price of housing. I identify the relative importance of each of these causes through a structural model that is estimated using housing consumption micro data. The price of housing is an endogenous feature of the model, which explains 61.8% of actual house price growth, of which 24.8% is due to the falling real interest rate, 20.1% is due to investor speculation and the remainder is due to a loosening debt-to-income ratio constraint. The estimated model replicates the increase in housing consumption inequality observed over the time period. The third chapter compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life-cycle, heterogeneous-agent, incomplete-markets model with education, labor supply, and consumption/saving decisions. Altruistic parents make inter vivos transfers. Student labor supply and government grants and loans complement parental transfers as sources of college funding. We find that the current U.S. financial aid system improves welfare, and removing it would reduce GDP by two percentage points. Relaxation of government-sponsored loan limits would have no salient effects. The short-run partial equilibrium effects of expanding tuition grants are sizeable. However, long-run general equilibrium effects are 3-4 times smaller. Every additional dollar of government grants crowds out 20-30 cents of parental transfers.
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