Technology Shocks and Asset Price Dynamics: The Role of Housing in General Equilibrium

Jiro Yoshida

MPRA Paper from University Library of Munich, Germany

Abstract: A general equilibrium model, that incorporates endogenous production and local housing markets, is developed in order to explain the price relationship among human capital, housing, and stocks, and to uncover the role of housing in asset pricing. Housing serves as an asset as well as a durable consumption good. It is shown that housing market conditions critically affect asset price correlations and risk premia. The first result is that the covariation of housing prices and stock prices can be negative if land supply is elastic. Data from OECD countries roughly support the model's predictions on the relationship among land supply elasticity, asset price correlations, and households' equity holdings. The second result is that housing rent growth serves as a risk factor in the pricing kernel. The risk premium becomes higher as land supply becomes inelastic and as housing services become more complementary with other goods. Finally, the housing component in the pricing kernel is shown to mitigate the equity premium puzzle and the risk-free rate puzzle.

Keywords: General equilibrium; asset pricing; housing; the equity premium puzzle (search for similar items in EconPapers)
JEL-codes: E32 G12 R20 R30 (search for similar items in EconPapers)
Date: 2007-12-13
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/7616/1/MPRA_paper_7616.pdf revised version (application/pdf)

Related works:
Working Paper: Technology Shocks and Asset Price Dynamics:The Role of Housing in General Equilibrium (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:6271

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