The Macroeconomics of Real Estate
Harald Uhlig () and
Stefan Ried ()
No 429, 2009 Meeting Papers from Society for Economic Dynamics
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.
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