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The Macroeconomics of Real Estate

Harald Uhlig and Stefan Ried

No 429, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: Is it possible to explain the house price to GDP ratio and the house price to stock price ratio as being generally constant, deviating from its respective mean only because of shocks to productivity? We build a two-sector RBC model for residential and non-residential capital with adjustment costs to capital in both sectors. We show that an anticipated future shock to productivity growth in the non-residential sector leads to a large increase in house prices in the present. We use this property of the model to explain the current house price behavior in the U.S., the U.K., Japan and Germany.

Date: 2009
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