The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium
University of British Columbia (UBC) - Division of Finance
Sydney C. Ludvigson
New York University - Department of Economics; National Bureau of Economic Research (NBER)
Stijn Van Nieuwerburgh
New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
October 5, 2015
Journal of Political Economy, Forthcoming
This paper studies a quantitative general equilibrium model of housing. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate business cycle risk, and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boom in house prices. Second, the boom in house prices is entirely the result of a decline in the housing risk premium. Third, low interest rates cannot explain high home values.
Number of Pages in PDF File: 114
JEL Classification: G11, G12, E44, E21
Date posted: May 10, 2010 ; Last revised: October 7, 2015
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