Housing, portfolio choice, and the macroeconomy
AbstractMuch of the macroeconomics literature dealing with wealth distribution has become abstracted from modeling housing explicitly. This paper investigates the properties of the wealth distribution and the portfolio composition regarding housing and equity holdings and their relationship to macroeconomic shocks. To this end, I construct a business cycle model in which agents differ in age, income, and wealth and derive utility from housing services. The model is consistent with several facts such as the life-cycle pattern of housing-to-wealth ratios, the larger degree of concentration for nonhousing wealth, and the smaller weight of housing in richer households’ portfolios as well as the larger housing-to-wealth ratios in recessions. In addition, the model delivers the familiar business-cycle moments regarding relative standard deviations and procyclicality of consumption, investment, and employment.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2005-21.
Date of creation: 2005
Date of revision:
Other versions of this item:
- NEP-ALL-2005-09-29 (All new papers)
- NEP-DGE-2005-09-29 (Dynamic General Equilibrium)
- NEP-MAC-2005-09-29 (Macroeconomics)
- NEP-URE-2005-09-29 (Urban & Real Estate Economics)
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