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Housing market spillovers: Evidence from an estimated DSGE model

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  • Matteo Iacoviello

    ()
    (Boston College)

  • Stefano Neri

    ()
    (Bank of Italy, Economics and International Relations)

Abstract

The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: first, a large fraction of the upward trend in real housing prices over the last 40 years can be accounted for by slow technological progress in the housing sector; second, residential investment and housing prices are very sensitive to monetary policy and housing demand shocks; third, the wealth effects from housing on consumption are positive and significant, and have become more important over time. The structural nature of the model allows identifying and quantifying the sources of fluctuations in house prices and residential investment and measuring the contribution of housing booms and busts to business cycles.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 659.

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Date of creation: Jan 2008
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Handle: RePEc:bdi:wptemi:td_659_08

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Keywords: House prices; Collateral Constraints; Bayesian methods; Two-sector Models;

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