Housing Market Spillovers: Evidence from an Estimated DSGE Model

Matteo Iacoviello () and Stefano Neri
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Stefano Neri: Banca D'Italia

No 659, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Using U.S. data and Bayesian methods, we quantify the contribution of the housing market to business fluctuations. The estimated model, which contains nominal and real rigidities and collateral constraints, is used to address two questions. First, what shocks drive the housing market? We find that the upward trend in real housing prices of the last 40 years can be explained by slow technological progress in the housing sector. Over the business cycle instead, housing demand and housing technology shocks account for roughly one-quarter each of the volatility of housing investment and housing prices. Monetary factors account for about 20 percent, but they played a major role in the housing market cycle at the turn of the century. Second, do fluctuations in the housing market propagate to other forms of expenditure? We find that the spillovers from the housing market to the broader economy are non-negligible, concentrated on consumption rather than business investment, and they have become more important over time, to the extent that financial innovation has increased the marginal availability of funds for credit-constrained agents.

Keywords: Housing; Collateral Constraints; Bayesian Estimation; Two-sector Models (search for similar items in EconPapers)
JEL-codes: E32 E44 E47 R21 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-ure
Date: 2007-03-25, Revised 2009-10-23
Note: previously circulated as "The Role of Housing Collateral in an Estimated Two-Sector Model of the U.S. Economy"
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Forthcoming, American Economic Journals: Macroeconomics

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Related works:
Working Paper: Housing market spillovers: Evidence from an estimated DSGE model (2008)
Working Paper: Housing market spillovers: evidence from an estimated DSGE model (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:boc:bocoec:659

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