Stock Prices, Regional Housing Prices, and Aggregate Technology Shocks
51 Pages Posted: 2 Sep 2015
Date Written: May 22, 2015
The correlation between stock and housing prices, which is critical for household asset allocations, varies widely by metropolitan area and country. A general equilibrium model demonstrates that an aggregate positive technology shock increases stock prices and housing demand but can decrease housing prices where land supply is elastic because stable future rents are discounted at higher interest rates. Using panel data of U.S. metropolitan areas and OECD countries, I find that the housing price response to TFP shocks as well as the stock-housing correlation are smaller and even negative where the housing supply is elastic. I also find that household equity investment is positively related to housing supply elasticity.
Keywords: macroeconomic shocks, total factor productivity, general equilibrium, regional heterogeneity, house price, housing supply elasticity, asset allocation
JEL Classification: E32, R21, R31, G11
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