The Baby Boom: Predictability in House Prices and Interest Rates

53 Pages Posted: 18 Dec 2005

See all articles by Robert F. Martin

Robert F. Martin

Federal Reserve Board - International Finance Division

Date Written: November 2005

Abstract

This paper explores the baby boom's impact on U.S. house prices and interest rates in the post-war 20th century and beyond. Using a simple Lucas asset pricing model, I quantitatively account for the increase in real house prices, the path of real interest rates, and the timing of low-frequency fluctuations in real house prices. The model predicts that the primary force underlying the evolution of real house prices is the systematic and predictable changes in the working age population driven by the baby boom. The model is calibrated to U.S. data and tested on international data. One surprising success of the model is its ability to predict the boom and bust in Japanese real estate markets around 1974 and 1990.

Keywords: Asset pricing, yield curve, great moderation

JEL Classification: E21, E31, G12, R21

Suggested Citation

Martin, Robert F., The Baby Boom: Predictability in House Prices and Interest Rates (November 2005). FRB International Finance Discussion Paper No. 847, Available at SSRN: https://ssrn.com/abstract=870590 or http://dx.doi.org/10.2139/ssrn.870590

Robert F. Martin (Contact Author)

Federal Reserve Board - International Finance Division ( email )

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