Land-Price Dynamics and Macroeconomic Fluctuations with General Household Preferences

Been-Lon Chen, Zheng-Ze Lai () and Shian-Yu Liao
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Zheng-Ze Lai: National Chengchi University, https://econo.nccu.edu.tw/eng/PageFront?fid=1032

No 23-A005, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: Through the collateral channel for entrepreneurs, a positive housing demand shock in Liu et al. (2013) increases land prices and business investment, but consumption decreases on impact and there is thus a comovement problem. This paper improves Liu et al. (2013) by adding general household preferences with broader intratemporal and intertemporal substitutions Bayesian estimation of our structural model based on aggregate U.S. data suggests that the intratemporal substitution is larger than unity and the intertemporal substitution is smaller than unity. Our impulse responses show that a positive housing demand shock increases land prices, business investment, and consumption, which resolves the comovement problem. Moreover, the strength of the collateral channel linking land prices and business investment in our Bayesian DSGE model is larger than that in Liu et al. (2013). Housing demand shocks explain 39−43% of the variance of output and 41−47% of the variance of investment in our model, but the same shocks explain only 17−31% of the variance of output and 30−41% of the variance of investment in Liu et al. (2013). Variance decomposition reveals that housing demand shocks account for a larger share of the fluctuations in land prices, investment, employment, and output than other shocks. Using the marginal data density as the measure of fit for models, we find that our model can better explain the same U.S. aggregate data.

Keywords: land prices; housing demand shocks; CES preferences; collateral constraints (search for similar items in EconPapers)
JEL-codes: E3 E5 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2023-07
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-ure
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Related works:
Journal Article: Land-price dynamics and macroeconomic fluctuations with general household preferences (2024)
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