House Prices, Real Estate Returns, and the Business Cycle

Abstract:     
The main objective of this work is to develop a general equilibrium business cycle model linking financial and real estate markets to the macro economy. The ability of a production economy to account simultaneously for asset pricing, business cycle and real estate market facts is then evaluated by comparing the model predictions to the empirical facts. The observed high volatility of house prices, the equity premium and the difference between equity and real estate excess returns can be explained without giving rise to excessive risk-free rate variation.

Number of Pages in PDF File: 39

Keywords: house prices, real estate returns, equity premium, business cycles, production economies

JEL Classification: E30, E22, G12

working papers series