The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium

Favilukis, Jack Y; Ludvigson, Sydney C.; Van Nieuwerburgh, Stijn

doi:10.2139/ssrn.1602163

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The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium

Journal of Political Economy, Forthcoming

114 Pages Posted: 10 May 2010 Last revised: 7 Oct 2015

See all articles by Jack Y Favilukis

Jack Y Favilukis

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

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); ABFER

There are 5 versions of this paper

Date Written: October 5, 2015

Abstract

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.

JEL Classification: G11, G12, E44, E21

Suggested Citation: Suggested Citation

Favilukis, Jack Y and Ludvigson, Sydney C. and Van Nieuwerburgh, Stijn, The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium (October 5, 2015). Journal of Political Economy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1602163 or http://dx.doi.org/10.2139/ssrn.1602163