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The baby boom: predictability in house prices and interest rates

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  • Robert F. Martin

Abstract

This paper explores the baby boom's impact on U.S. house prices and interest rates in the post-war 20th century and beyond. Using a simple Lucas asset pricing model, I quantitatively account for the increase in real house prices, the path of real interest rates, and the timing of low-frequency fluctuations in real house prices. The model predicts that the primary force underlying the evolution of real house prices is the systematic and predictable changes in the working age population driven by the baby boom. The model is calibrated to U.S. data and tested on international data. One surprising success of the model is its ability to predict the boom and bust in Japanese real estate markets around 1974 and 1990.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 847.

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Date of creation: 2005
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Handle: RePEc:fip:fedgif:847

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Keywords: Housing - Prices ; Interest rates ; Asset pricing ; Econometric models;

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  1. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009.
  2. Carlos Garriga, 2010. "The Role of Construction in the Housing Boom and Bust in Spain," Working Papers 2010-09, FEDEA.
  3. Michele Boldrin, 2012. "Reconstructing the Great Recession," 2012 Meeting Papers 1038, Society for Economic Dynamics.
  4. Saita, Yumi & Shimizu, Chihiro & Watanabe, Tsutomu, 2013. "Aging and Real Estate Prices: Evidence from Japanese and US Regional Data," HIT-REFINED Working Paper Series 2, Institute of Economic Research, Hitotsubashi University.
  5. Yumi Saita & Chihiro Shimizu & Tsutomu Watanabe, 2013. "Aging and Real Estate Prices: Evidence from Japanese and US Regional Data," CARF F-Series CARF-F-334, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  6. James A. Kahn, 2008. "What drives housing prices?," Staff Reports 345, Federal Reserve Bank of New York.
  7. Rose Cunningham & Ilan Kolet, 2007. "Housing Market Cycles and Duration Dependence in the United States and Canada," Working Papers 07-2, Bank of Canada.
  8. Robert F. Martin & Don Schlagenhauf & Carlos Garriga, 2010. "Housing Boom and Bust Cycles," 2010 Meeting Papers 1080, Society for Economic Dynamics.

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