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Household Expenditures, Wages, Rents

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  • Morris A. Davis
  • François Ortalo-Magné

Abstract

We provide new evidence from the 1980, 1990, and 2000 Decennial Census of Housing that the expenditure share on housing is constant over time and across U.S. metropolitan areas (MSA). Consistent with this observation, we consider a basic model in which identical households with Cobb-Douglas preferences for housing and numeraire consumption choose an MSA in which to live and MSAs differ with respect to income earned by residents. We compute constant-quality wages and rental prices for a sample of 50 U.S. MSAs. Given estimated wages, the calibrated model predicts that rental prices should be more dispersed than observed. That is, the model suggests that rental prices are too low in many high-wage MSAs in the year 2000.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-12/cesifo1_wp2156.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2156.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2156

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Keywords: household expenditures; housing prices; Cobb-Douglas utility;

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References

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  1. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
  2. Hernán D. Rozenfeld & Diego Rybski & Xavier Gabaix & Hernán A. Makse, 2009. "The Area and Population of Cities: New Insights from a Different Perspective on Cities," NBER Working Papers 15409, National Bureau of Economic Research, Inc.
  3. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9807, University of Western Ontario, Department of Economics.
  4. Mark Aguiar & Erik Hurst, 2008. "Deconstructing Lifecycle Expenditure," Working Papers, University of Michigan, Michigan Retirement Research Center wp173, University of Michigan, Michigan Retirement Research Center.
  5. Robert E. Lucas, Jr., 2001. "Externalities and Cities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 245-274, April.
  6. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2006. "Superstar Cities," NBER Working Papers 12355, National Bureau of Economic Research, Inc.
  7. Robert E. Lucas & Esteban Rossi-Hansberg, 2002. "On the Internal Structure of Cities," Econometrica, Econometric Society, Econometric Society, vol. 70(4), pages 1445-1476, July.
  8. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, American Economic Association, vol. 94(5), pages 1429-1451, December.
  9. Morris A. Davis & Jonathan Heathcote, 2004. "The price and quantity of residential land in the United States," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-37, Board of Governors of the Federal Reserve System (U.S.).
  10. Davis, Morris & Heathcote, Jonathan, 2001. "Housing and the Business Cycle," Working Papers, Duke University, Department of Economics 01-09, Duke University, Department of Economics.
  11. Dirk Krueger & Jesus Fernandez-Villaverde, 2005. "Borrowing Constraints, Durables, and the Business Cycle," 2005 Meeting Papers, Society for Economic Dynamics 178, Society for Economic Dynamics.
  12. Paul Gomme & Finn Kydland & Peter Rupert, 2000. "Home production meets time-to-build," Working Paper 0007R, Federal Reserve Bank of Cleveland.
  13. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
  14. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers, Central Bank of Cyprus 2010-5, Central Bank of Cyprus.
  15. Jonas D. M. Fisher, 2007. "Why Does Household Investment Lead Business Investment over the Business Cycle?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 141-168.
  16. Greenwood, J. & Rogerson, R. & Wright, R., 1993. "Household Production in Real Business Cycle Thoery," RCER Working Papers 347, University of Rochester - Center for Economic Research (RCER).
  17. Kahn Matthew E., 1995. "A Revealed Preference Approach to Ranking City Quality of Life," Journal of Urban Economics, Elsevier, vol. 38(2), pages 221-235, September.
  18. David Albouy, 2009. "The Unequal Geographic Burden of Federal Taxation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 117(4), pages 635-667, 08.
  19. Hanno Lustig & Stijn Van Nieuwerburgh, 2006. "Can Housing Collateral Explain Long-Run Swings in Asset Returns?," NBER Working Papers 12766, National Bureau of Economic Research, Inc.
  20. Fisher, Jonas D. M., 1997. "Relative prices, complementarities and comovement among components of aggregate expenditures," Journal of Monetary Economics, Elsevier, Elsevier, vol. 39(3), pages 449-474, August.
  21. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September.
  22. Jordan Rappaport, 2006. "Consumption amenities and city crowdedness," Research Working Paper, Federal Reserve Bank of Kansas City RWP 06-10, Federal Reserve Bank of Kansas City.
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