Subprime Lending and Financial Inequality in an Agent-Based Model
Real estate bubbles often trigger financial and economic crisis. U.S. subprime mortgage crisis and the Spanish property bubble, both occurring in 2008, are recent examples whose consequences are still affecting the respective economies. The aim of this paper is to understand if the level of concentration of financial capital has an impact on the real estate bubble formation. We study the issue in a first scenario where mortgage loans are easily granted (subprime mortgages) and in second one with a stricter regulation for the access to credit. Our results show that the combination of capital concentration and easy access to credit gives rise to a strong economic instability and to a highly unequal distribution of wealth.
KeywordsCentral Bank Housing Price Housing Market Housing Unit Equity Fund
The authors would like to acknowledge the financial support of the Icelandic Center for Research (RANNIS), grant no. 110653021. AT also acknowledges projets GV/2012/045 of the Generalitat Valenciana, project Bancaja P11A2010-17, and the Spanish national project ECO2011-23634.
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