Amortization Requirements and Household Indebtedness: An Application to Swedish- Style Mortgages

Since the mid-1990s, many OECD countries have experienced a substantial increase in household indebtedness. Sweden, in particular, has seen indebtedness rise from 90% of disposable income in 1995 to 172% in 2014. The Swedish Financial Supervisory Authority (FSA) has identified mortgage amortization requirements as a potential instrument for reducing indebtedness; and has drafted guidelines that will intensify the rate and duration of amortization. In this paper, I characterize Swedish-style mortgage contracts, which differ substantially from U.S.-style contracts. I then evaluate the policy changes in an incomplete markets model with three types of debt and a novel mortgage contract specification that is calibrated to match Swedish micro and macro data. I find that intensifying the rate and duration of amortization is largely ineffective at reducing indebtedness in a realistically-calibrated model. In the absence of implausibly large refinancing costs or tight restrictions on the maximum debt-service-to-income ratio, the policy impact is small in aggregate, over the lifecycle, and across employment statuses. These results may be relevant for other OECD countries, such as Norway and Canada, that have also not seen a reduction in house prices or indebtedness since the 2007 financial crisis

Finite element analysis of a deep-seated slope deformation

A study is presented of the slow time dependent movement of the deep-seated deformation of Rosone. This rock slope, which mainly consists of gneiss, is located on the Italian side of Western Alps and has been a¨ected by recurrent instability phenomena. Due to these, and also to the presence of various villages and man-made structures (such as a hydroelectric power plant), a signi®cant amount of geological and geomechanical data has been collected in this area. They have led to the assumption that the slow movement develops along a deep-seated sliding surface, involving a volume of rock between 22 and 35 million cubic meters. To check these hypotheses, and to get some insight into the causes of the phenomenon, a series of non-linear, time-dependent analyses has been carried out through the ®nite element method. The slow movement of the rock mass, and the gradual loss of its mechanical properties with increasing deformation, has been accounted for in the calculations by means of a visco-plastic constitutive law, allowing for strain softening e¨ects. The results of analyses lead to some conclusions on the causes of the observed movements, among which the possible in¯uence of the groundwater pore pressure is likely to play an important role

Translational slope instabilities in weak rock

This paper examines the problem of translational slope instabilities occurring in complex geological formations of weak rock as are typical of the Langhe region in Italy. Unstable rock volumes slide along slightly dipping planar surfaces that are formed where adjacent layers of marI and sand are in contact. Four sites were identified and examined. Special attention was devoted to the development of a laboratory method able to simulate the behaviour of the thin layer of marI which is deemed to play an active role in these phenomena in conjunction with the sand layers providing a preferential path for groundwater circulation: Direct shear tests were carried out and the results obtained show that the fundamental role played in instability phenomena by the destructuring effect of water on marI cannot be taken into account through the customary laboratory techniques

Subprime Borrowers, Securitization and the Transmission of Business Cycles

A growing literature (i.e. Jaffee, Lynch, Richardson, and Van Nieuwerburgh 2009, Acharya and Schnabl 2009) argues that securitization improves financial stability if the securitized assets are held by capital market participants, rather than financial intermediaries. I construct a quantitative macroeconomic model with a novel specification for mortgage-backed securities (MBS) to evaluate this claim. My findings suggest that the existence of the securitization market stabilizes the economy under the condition that financial intermediaries do not engage in the acquisition of securitized assets. In the presence of large negative housing preference shocks, the drop in output in the first year after the shock is halved, if subprime MBS are purchased by non-financial agents, rather than held by banks