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Asset pricing and housing supply in a production economy

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  • Jaccard, Ivan

Abstract

We develop a representative agent model of a production economy in order to explain the joint dynamics of house prices and equity returns. In a model generating costly business cycle fluctuations, we find that restrictions on housing supply have important implications for asset pricing. Together with habit formation in the composite of consumption and leisure, building restrictions provide an explanation for the high volatility of house prices and contribute to the resolution of asset pricing puzzles. JEL Classification: E2, E3, G1

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1454.

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Date of creation: Jul 2012
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Handle: RePEc:ecb:ecbwps:20121454

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Keywords: adjustment costs; cost of business cycle; House prices; housing returns;

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References

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  1. John M. Quigley & Steven Raphael, 2005. "Regulation and the High Cost of Housing in California," American Economic Review, American Economic Association, vol. 95(2), pages 323-328, May.
  2. Fran├žois Gourio, 2009. "Disasters Risk and Business Cycles," NBER Working Papers 15399, National Bureau of Economic Research, Inc.
  3. Fatih Guvenen, 2009. "A parsimonious macroeconomic model for asset pricing," Staff Report 434, Federal Reserve Bank of Minneapolis.
  4. Charles Ka-Yui Leung, 2004. "Macroeconomics and Housing: A Review of the Literature," Departmental Working Papers _164, Chinese University of Hong Kong, Department of Economics.
  5. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006. "Why Has House Price Dispersion Gone Up?," NBER Working Papers 12538, National Bureau of Economic Research, Inc.
  6. Morris Davis & Jonathan Heathcote, 2004. "Housing and the business cycle," Finance and Economics Discussion Series 2004-11, Board of Governors of the Federal Reserve System (U.S.).
  7. Ivan Jaccard, 2007. "Asset Pricing, Habit Memory, and the Labor Market," Swiss Finance Institute Research Paper Series 07-23, Swiss Finance Institute, revised Nov 2007.
  8. Robert F. Martin & Don Schlagenhauf & Carlos Garriga, 2010. "Housing Boom and Bust Cycles," 2010 Meeting Papers 1080, Society for Economic Dynamics.
  9. Jin, Yi & Zeng, Zhixiong, 2004. "Residential investment and house prices in a multi-sector monetary business cycle model," Journal of Housing Economics, Elsevier, vol. 13(4), pages 268-286, December.
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Cited by:
  1. Jaccard, Ivan, 2013. "Liquidity constraints, risk premia, and themacroeconomic effects of liquidity shocks," Working Paper Series 1525, European Central Bank.
  2. Cheng, Lichao & Jin, Yi, 2013. "Asset prices, monetary policy, and aggregate fluctuations: An empirical investigation," Economics Letters, Elsevier, vol. 119(1), pages 24-27.
  3. Christoffel, Kai & Jaccard, Ivan & Kilponen, Juha, 2013. "Welfare and bond pricing implications of fiscal stabilization policies," Research Discussion Papers 32/2013, Bank of Finland.
  4. Yu Zhu & Randall Wright & Chao He, 2013. "Housing and Liquidity," 2013 Meeting Papers 168, Society for Economic Dynamics.

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