Risk Shocks and Housing Markets

Victor Dorofeenko, Gabriel Lee and Kevin Salyer ()
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Victor Dorofeenko: Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria

No 249, Economics Series from Institute for Advanced Studies

Abstract: This paper analyzes the role of uncertainty in a multi-sector housing model with financial frictions. We include time varying uncertainty (i.e. risk shocks) in the technology shocks that affect housing production. The analysis demonstrates that risk shocks to the housing production sector are a quantitatively important impulse mechanism for the business cycle. Also, we demonstrate that bankruptcy costs act as an endogenous markup factor in housing prices; as a consequence, the volatility of housing prices is greater than that of output, as observed in the data. The model can also account for the observed countercyclical behavior of risk premia on loans to the housing sector.

Keywords: Agency costs; credit channel; time-varying uncertainty; residential investment; housing production; calibration (search for similar items in EconPapers)
JEL-codes: E2 E4 E5 R2 R3 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-02
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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https://irihs.ihs.ac.at/id/eprint/1973 First version, 2010 (application/pdf)

Related works:
Working Paper: Risk Shocks and Housing Markets (2010)
Working Paper: Risk Shocks and Housing Markets (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ihs:ihsesp:249

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