A Theory of Housing Demand Shocks

Ding Dong (), Zheng Liu, Pengfei Wang and Tao Zha
Additional contact information
Ding Dong: http://phd.bm.ust.hk/programs/student-profiles/1584

No 2019-9, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Housing demand shocks in standard macroeconomic models are a primary source of house price fluctuations, but those models have difficulties in generating the observed large volatility of house prices relative to rents. We provide a microeconomic foundation for the reduced-form housing demand shocks with a tractable heterogenous-agent framework. In our model with heterogeneous beliefs, an expansion of credit supply raises housing demand of optimistic buyers and boosts house prices without affecting rents. A credit supply shock also leads to a positive correlation between house trading volumes and house prices. The theoretical mechanism and model predictions are supported by empirical evidence, and the results are robust to alternative specifications of heterogeneity.

Keywords: Housing demand; house prices; price-rent ratio; heterogeneous beliefs; Credit constraints (search for similar items in EconPapers)
JEL-codes: E21 E27 E32 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2022-05-10
New Economics Papers: this item is included in nep-ban, nep-mac and nep-ure
Note: The first version of this Working Paper was published March 7, 2019.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: 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)
Working Paper: A Theory of Housing Demand Shocks (2019)
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DOI: 10.24148/wp2019-09

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