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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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  • Jaccard, Ivan, 2012. "Asset pricing and housing supply in a production economy," Working Paper Series 1454, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20121454
    Note: 737337
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    Cited by:

    1. Miles, David & Sefton, James, 2017. "Houses across time and across place," CEPR Discussion Papers 12103, C.E.P.R. Discussion Papers.
    2. Daniel Fehrle & Christopher Heiberger, 2020. "The return on everything and the business cycle in production economies," Working Papers 193, Bavarian Graduate Program in Economics (BGPE).
    3. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    4. Chao He & Randall Wright & Yu Zhu, 2015. "Housing and Liquidity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 435-455, July.
    5. Huh, Sungjun & Kim, Insu, 2021. "Real estate and relative risk aversion with generalized recursive preferences," Journal of Macroeconomics, Elsevier, vol. 68(C).
    6. Jaccard, Ivan, 2021. "Leveraged property cycles," Working Paper Series 2539, European Central Bank.
    7. Pauline Gandré, 2020. "Learning, house prices and macro-financial linkages," Working Papers hal-04159701, HAL.
    8. Jaccard, Ivan, 2013. "Liquidity constraints, risk premia, and themacroeconomic effects of liquidity shocks," Working Paper Series 1525, European Central Bank.
    9. Sabine Winkler, 2017. "Housing, Finance, Policy and the Wider Economy," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 7(2), pages 45-64, June.
    10. Dmitriev, Alexandre, 2017. "Composite habits and international transmission of business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 1-34.
    11. Cheng, Lichao & Jin, Yi, 2013. "Asset prices, monetary policy, and aggregate fluctuations: An empirical investigation," Economics Letters, Elsevier, vol. 119(1), pages 24-27.
    12. Rünstler, Gerhard & Balfoussia, Hiona & Burlon, Lorenzo & Buss, Ginters & Comunale, Mariarosaria & De Backer, Bruno & Dewachter, Hans & Guarda, Paolo & Haavio, Markus & Hindrayanto, Irma & Iskrev, Nik, 2018. "Real and financial cycles in EU countries - Stylised facts and modelling implications," Occasional Paper Series 205, European Central Bank.

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    More about this item

    Keywords

    adjustment costs; cost of business cycle; house prices; housing returns;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G1 - Financial Economics - - General Financial Markets

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