A Theory of Housing Demand Shocks

Zheng Liu, Pengfei Wang and Tao Zha

No 2019-4, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that comoves with the house price observed in the data (the ?price-rent puzzle?). We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. The model predicts that a credit supply shock can generate large comovements between the house price and the price-to-rent ratio. We provide empirical evidence from cross-country and cross-MSA data to support this theoretical prediction.

Keywords: price-rent puzzle; heterogeneity; marginal agent; cutoff point; liquidity premium; price-to-rent ratio; collateral constraints (search for similar items in EconPapers)
JEL-codes: E21 E44 G21 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2019-03-01
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.frbatlanta.org/-/media/documents/resea ... hocks-2019-03-25.pdf Full text (application/pdf)

Related works:
Journal Article: A theory of housing demand shocks (2022)
Working Paper: A Theory of Housing Demand Shocks (2022)
Working Paper: A Theory of Housing Demand Shocks (2019)
Working Paper: A Theory of Housing Demand Shocks (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:2019-04

Ordering information: This working paper can be ordered from

DOI: 10.29338/wp2019-04

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark ().