The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium

Jack Favilukis, Sydney C. Ludvigson and Stijn Van Nieuwerburgh

Journal of Political Economy, 2017, vol. 125, issue 1, 140 - 223

Abstract: This paper studies a quantitative general equilibrium model of housing. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate business cycle risk and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boom in house prices. Second, the boom in house prices is entirely the result of a decline in the housing risk premium. Third, low interest rates cannot explain high home values.

Date: 2017
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Related works:
Working Paper: The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium (2010)
Working Paper: The Macroeconomic E¤ects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium (2010)
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