The Korean Journal of Economic Studies
Analysis and Verification of the Leverage Effect of Chonsei under Low Interest Rates
Jongeok Son (Seoul National University)Year 2021Vol. 69No. 4
AbstractThe housing purchase utilizing Chonsei as leverage yields an excess return under low interest rates since the 2000s. I present a simple static model toanalyze the impact of Chonsei leveraged investment on housing market. Especially, I analyze the choices of demanders and changes in prices subjectto income constraint by introducing the income distribution of demanders. Since the Chonsei leveraged investment creates demand in housing market and supply in Chonsei market simultaneously, it forms a negative correlation between purchase and Chonsei prices. I tested the negative correlation and estimated the parameter that measures the size of Chonsei leveraged investment.