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Housing Market Spillovers: Evidence from an Estimated DSGE Model

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Author Info
Matteo Iacoviello () (Boston College)
Stefano Neri (Banca D'Italia)

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Abstract

Using U.S. data and Bayesian methods, we quantify the contribution of the housing market to business fluctuations. The estimated model, which contains nominal and real rigidities and collateral constraints, is used to address two questions. First, what shocks drive the housing market? We find that the upward trend in real housing prices of the last 40 years can be explained by slow technological progress in the housing sector. Over the business cycle instead, housing demand and housing technology shocks account for roughly one-quarter each of the volatility of housing investment and housing prices. Monetary factors account for about 20 percent, but they played a major role in the housing market cycle at the turn of the century. Second, do fluctuations in the housing market propagate to other forms of expenditure? We find that the spillovers from the housing market to the broader economy are non-negligible, concentrated on consumption rather than business investment, and they have become more important over time, to the extent that financial innovation has increased the marginal availability of funds for credit-constrained agents.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 659.

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Length: 46 pages
Date of creation: 25 Mar 2007
Date of revision: 22 Jan 2008
Handle: RePEc:boc:bocoec:659

Note: previously circulated as "The Role of Housing Collateral in an Estimated Two-Sector Model of the U.S. Economy"
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Related research
Keywords: Housing Collateral Constraints Bayesian Estimation Two-sector Models

Other versions of this item:

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mendicino, Caterina, 2008. "On the amplification role of collateral constraints," MPRA Paper 9425, University Library of Munich, Germany. [Downloadable!]
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