Housing and consumption volatility: the role of rental price rigidity

Wonmun Shin

European Economic Review, 2025, vol. 180, issue C

Abstract: Business cycles in emerging economies tend to exhibit greater volatility in both housing prices and relative consumption compared to those in rich countries. This paper documents a positive cross-country relationship between house price volatility and relative consumption volatility and explores the underlying mechanisms using a small open economy model with housing and rental markets. While housing consumption, as measured by rental prices, constitutes a sizable share of total consumption, the role of the rental market has been largely overlooked. By explicitly modeling both housing and rental sectors, the paper explains a new stylized fact: housing consumption is more volatile than non-housing consumption in emerging countries. Model simulations show that financial frictions drive the positive correlation between house prices and consumption volatility, while cross-country differences in rental price rigidity explain the variation in relative housing consumption volatility. A rent rigidity index, constructed from country-level rental market characteristics, provides supporting evidence for the model’s predictions.

Keywords: Consumption volatility; Housing consumption; House prices; Housing rental markets; Rental price rigidity (search for similar items in EconPapers)
JEL-codes: C82 E10 E32 F41 F44 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292125002016
Full text for ScienceDirect subscribers only

Related works:
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:eee:eecrev:v:180:y:2025:i:c:s0014292125002016

DOI: 10.1016/j.euroecorev.2025.105151

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().