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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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References

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  1. Andrew B. Abel, 2001. "Will Bequests Attenuate The Predicted Meltdown In Stock Prices When Baby Boomers Retire?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 589-595, November.
  2. Mankiw, N. Gregory & Weil, David N., 1991. "The baby boom, the baby bust, and the housing market A reply to our critics," Regional Science and Urban Economics, Elsevier, vol. 21(4), pages 573-579, December.
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  25. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2003. "Engines of Liberation," RCER Working Papers 503, University of Rochester - Center for Economic Research (RCER).
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Citations

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Cited by:
  1. Rose Cunningham & Ilan Kolet, 2007. "Housing Market Cycles and Duration Dependence in the United States and Canada," Working Papers 07-2, Bank of Canada.
  2. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers: Evidence from an estimated DSGE model," Temi di discussione (Economic working papers) 659, Bank of Italy, Economic Research and International Relations Area.
  3. Michele Boldrin, 2012. "Reconstructing the Great Recession," 2012 Meeting Papers 1038, Society for Economic Dynamics.
  4. James A. Kahn, 2008. "What drives housing prices?," Staff Reports 345, Federal Reserve Bank of New York.
  5. 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.
  6. Carlos Garriga, 2010. "The Role of Construction in the Housing Boom and Bust in Spain," Working Papers 2010-09, FEDEA.
  7. Robert F. Martin & Don Schlagenhauf & Carlos Garriga, 2010. "Housing Boom and Bust Cycles," 2010 Meeting Papers 1080, Society for Economic Dynamics.
  8. 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.

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