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Housing Market Dynamics: Any News?

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  • Sandra Gomes
  • Caterina Mendicino

Abstract

This paper quantifies the importance of news shocks for housing market fluctuations. To this purpose, we extend Iacoviello and Neri (2010)'s model of the housing market to include news shocks and estimate it using Bayesian methods and U.S. data. We find that news shocks: (1) account for a sizable fraction of the variability in house prices and other macroeconomic variables over the business cycle and (2) significantly contributed to booms and busts episodes in house prices over the last three decades. By linking news shocks to agents' expectations, we find that house price growth was positively related to inflation expectations during the boom of the late 1970's while it was negatively related to interest rate expectations during the housing boom that peaked in the mid-2000's. JEL Classification: C50, E32, E44.

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Bibliographic Info

Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2012/23.

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Date of creation: Jul 2012
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Handle: RePEc:ise:isegwp:wp232012

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Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

Related research

Keywords: bayesian estimation; news shocks; local identification; housing market; financial frictions; inflation and interest rate expectations.;

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References

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  1. Lambertini, Luisa & Mendicino, Caterina & Punzi, Maria Teresa, 2010. "Expectations-Driven Cycles in the Housing Market," MPRA Paper 26128, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Virginia Queijo von Heideken & Ferre De Graeve, 2012. "Fiscal policy in contemporary DSGE models," 2012 Meeting Papers 74, Society for Economic Dynamics.
  2. Franck Portier, 2014. "News Driven Business Cycles: Insights and Challenges," 2014 Meeting Papers 289, Society for Economic Dynamics.
  3. Luisa Lambertini & Caterina Mendicino & Maria Tereza Punzi, 2011. "Leaning Against Boom-Bust Cycles in Credit and Housing Prices," Working Papers w201108, Banco de Portugal, Economics and Research Department.
  4. Fabio Milani, 2012. "The Modeling of Expectations in Empirical DSGE Models: a Survey," Working Papers 121301, University of California-Irvine, Department of Economics.
  5. Sandra Gomes & Nikolay Iskrev & Caterina Mendicino, 2013. "Monetary policy shocks: We got news!," Working Papers w201307, Banco de Portugal, Economics and Research Department.
  6. Lambertini, Luisa & Mendicino, Caterina & Punzi, Maria Teresa, 2013. "Expectation-driven cycles in the housing market: Evidence from survey data," Journal of Financial Stability, Elsevier, vol. 9(4), pages 518-529.

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