Imperfect information and the house price in a general-equilibrium model
Journal of Economic Dynamics and Control, 2017, vol. 83, issue C, 215-231
House prices have inertia, which may be because housing-market participants need time to recognize long booms and recessions. Within a dynamic stochastic general-equilibrium model with an endogenous market for housing, I consider the case of rational expectations subject to imperfect information about the persistence of exogenous shocks. I evaluate the performance of the model against the last 40 years of key U.S. macroeconomic data. Bayesian comparison strongly favors the model over the baseline case with perfect information. Under imperfect information, agents rely on learning to form expectations, which improves the ability of the model to generate realistic low-frequency house-price dynamics. However, as long as the agents form expectations rationally, the improvement is limited. Furthermore, to confine price inertia within the housing market is a challenge for the general-equilibrium approach.
Keywords: Housing; DSGE; Learning; Bayesian estimation (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:83:y:2017:i:c:p:215-231
Access Statistics for this article
Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok
More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().