TY - JOUR
T1 - The macroeconomic effects of housing wealth, housing finance, and limited risk sharing in general equilibrium
AU - Favilukis, Jack
AU - Ludvigson, Sydney C.
AU - Van Nieuwerburgh, Stijn
N1 - Funding Information:
This material is based on work supported by the National Science Foundation under grant 1022915 to Ludvigson and Van Nieuwerburgh. We are grateful to Alberto Bisin, Daniele Coen-Pirani, Dean Corbae, Morris Davis, Bernard Dumas, Raquel Fernandez, Carlos Garriga, Bruno Gerard, Francisco Gomes, James Kahn, John Leahy, Chris Mayer, Jonathan McCarthy, François Ortalo-Magne, Stavros Panageas, Monika Piazzesi, Richard Peach, Gianluca Violante, and Amir Yaron and to seminar participants at Erasmus Rotterdam, the European Central Bank, International College for Economics and Finance, HEC Montreal, London School of Economics, London Business School, Manchester Business School, New York University, Stanford Economics, Stanford Finance, University of California, Los Angeles Finance, University of California, Berkeley Finance, Université de Lausanne, University of Michigan, University of Tilburg, University of Toronto, the University of Virginia Mc- Intyre/Darden joint seminar, the American Economic Association annual meetings, January 2009 and January 2010, the Economic Research Initiatives conference at Duke 2010, the London School of Economics Conference on Housing, Financial Markets, and the Macroeconomy May 18-19, 2009, the MinnesotaWorkshop in Macroeconomic Theory July 2009, the NBER Economic Fluctuations and Growth conference, February 2010, the European Finance Association meetings Frankfurt 2010, the NBER Economics of Real Estate and Local Public Finance Summer Institute meeting July 2010, the Society for Economic Dynamics Montreal 2010, the Utah Winter Finance Conference February 2010, the NBER Asset Pricing Meeting April 2011, the 2011 Western Finance Association meeting, the Baruch New York City Real Estate meeting 2012, and the 2012 PhiladephiaWorkshop on Macroeconomics for helpful comments. Any errors or omissions are the responsibility of the authors. Data are provided as supplementary material online.
Publisher Copyright:
© 2017 by The University of Chicago. All rights reserved.
PY - 2017/2
Y1 - 2017/2
N2 - 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 boomin 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.
AB - 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 boomin 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.
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U2 - 10.1086/689606
DO - 10.1086/689606
M3 - Article
AN - SCOPUS:85009963966
VL - 125
SP - 140
EP - 223
JO - Journal of Political Economy
JF - Journal of Political Economy
SN - 0022-3808
IS - 1
ER -