Housing, home production, and the equity and value premium puzzles

Morris Davis () and Robert F. Martin ()

No 931, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We test if a standard representative agent model with a home-production sector can resolve the equity premium or value premium puzzles. In this model, agents value market consumption and a home consumption good that is produced as an aggregate of the stock of housing, home labor, and a labor-augmenting technology shock. We construct the unobserved quantity of the home consumption good by combining observed data with restrictions of the model. We test the first-order conditions of the model using GMM. The model is rejected by the data; it cannot explain either the historical equity premium or the value premium.

Keywords: Housing - Finance; Housing - Prices; Consumption (Economics) (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk and nep-ure
Date: 2008
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