Journal of Political Economy Vol. 125 No. 1 2017
The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium
Abstract
This paper studies a quantitative general equilibrium model of housing. The model has two key elements not previously considered in existing quantitative macro studies of housing finance: aggregate business cycle risk and a realistic wealth distribution driven in the model by bequest heterogeneity in preferences. These features of the model play a crucial role in the following results. First, a relaxation of financing constraints leads to a large boom in house prices. Second, the boom in house prices is entirely the result of a decline in the housing risk premium. Third, low interest rates cannot explain high home values.
- DOI
- 10.1086/689606
- Volume
- 125
- Issue
- 1
- Pages
- 140-223
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex