How well do DSGE models with real estate and collateral constraints fit the data?

Alban Moura and Olivier Pierrard

No 168, BCL working papers from Central Bank of Luxembourg

Abstract: Not so well. We reach this conclusion by evaluating the empirical performance of a benchmark DSGE model with real estate and collateral constraints. We estimate the model from U.S. data using Bayesian methods and assess its fit along various dimensions. We find that the model is strongly rejected when tested against unrestricted Bayesian VARs and cannot replicate the persistence of real estate prices and various comovements between aggregate demand, real estate prices, and debt. Performance does not improve with alternative definitions of real estate prices, estimation samples, or detrending approaches. Our results raise doubts about the ability of current DSGE models with real estate and collateral constraints to deliver credible policy insights and identify the dimensions in need of improvement.

Keywords: real estate; housing; DSGE models; collateral constraints; model evaluation (search for similar items in EconPapers)
JEL-codes: C52 E32 E44 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2022-10
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-ure
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Working Paper: How well do DSGE models with real estate and collateral constraints fit the data? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp168

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