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A Theory of Housing Demand Shocks

Zheng Liu (), Pengfei Wang () and Tao Zha ()

No 78, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: Housing demand shocks are an important source of housing price fluctuations and, through the collateral channel, they drive macroeconomic fluctuations as well. However, these reduced-form shocks in the standard macro models fail to generate the observed large fluctuations in the housing price-to-rent ratio. We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. Households with high marginal utility of housing face binding credit constraints, giving rise to a liquidity premium in the aggregated housing Euler equation. The liquidity premium drives a wedge between the house price and the average rent and allows credit supply shocks to generate large fluctuations in house prices and the price-to-rent ratio.

Date: 2019
New Economics Papers: this item is included in nep-dge and nep-mac
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https://economicdynamics.org/meetpapers/2019/paper_78.pdf (application/pdf)

Related works:
Working Paper: A Theory of Housing Demand Shocks (2019) Downloads
Working Paper: A Theory of Housing Demand Shocks (2019) Downloads
Working Paper: A Theory of Housing Demand Shocks (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:78

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