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The Sources of Fluctuations in Residential Investment: A View from a Policy-Oriented DSGE Model of the U.S. Economic

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  • Michael T. Kiley

    (Federal Reserve Board)

  • Jean-Philippe Laforte

    (Federal Reserve Board)

  • Rochelle M. Edge

    (Federal Reserve Board)

Abstract

This paper analyzes fluctuations in residential investment using an estimated DSGE model of the U.S. economy, which is current used to analyze policy questions and to produce forecasts on a regular basis. Importantly, the model is more detailed in its treatment of domestic spending and production decisions than most other models, allowing consideration of questions related to the housing sector and other macroeconomic developments. Our analysis examines the importance of various structural factors in determining the course of residential investment in the United States over the past two decades. We focus especially on developments in the last ten years, and examine in detail the relationship between monetary policy actions and residential investment within our model.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 990.

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Date of creation: 2008
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Handle: RePEc:red:sed008:990

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  1. Katharine S. Neiss & Edward Nelson, 2001. "The real interest rate gap as an inflation indicator," Bank of England working papers, Bank of England 130, Bank of England.
  2. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 391-406, June.
  3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(4), pages 27-48, Fall.
  4. Rochelle M. Edge & Thomas Laubach & John C. Williams, 2003. "The responses of wages and prices to technology shocks," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-65, Board of Governors of the Federal Reserve System (U.S.).
  5. Jean-Philippe Laforte, 2007. "Pricing Models: A Bayesian DSGE Approach for the U.S. Economy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(s1), pages 127-154, 02.
  6. Thomas Laubach and John C. Williams, 2001. "Measuring the Natural Rate of Interest," Computing in Economics and Finance 2001, Society for Computational Economics 35, Society for Computational Economics.
  7. Edward E. Leamer, 2007. "Housing IS the Business Cycle," NBER Working Papers 13428, National Bureau of Economic Research, Inc.
  8. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  9. Riccardo DiCecio, 2004. "Comovement: it's not a puzzle," 2004 Meeting Papers, Society for Economic Dynamics 113, Society for Economic Dynamics.
  10. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 367-390, June.
  11. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 411-45, March.
  12. Michael T. Kiley, 2007. "A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(s1), pages 101-125, 02.
  13. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2010. "A comparison of forecast performance between Federal Reserve staff forecasts, simple reduced-form models, and a DSGE model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 25(4), pages 720-754.
  14. Rochelle Edge & Michael Kiley & Jean-Philippe Laforte, 2005. "An estimated DSGE model of the US economy with an application to natural rate measures," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.).
  15. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series, Federal Reserve Bank of Chicago WP-99-14, Federal Reserve Bank of Chicago.
  16. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2007. "Documentation of the Research and Statistics Division’s estimated DSGE model of the U.S. economy: 2006 version," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2007-53, Board of Governors of the Federal Reserve System (U.S.).
  17. Michael T. Kiley, 2010. "Habit Persistence, Nonseparability between Consumption and Leisure, or Rule-of-Thumb Consumers: Which Accounts for the Predictability of Consumption Growth?," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 679-683, August.
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Cited by:
  1. Michael Kiley & Jean-Philippe Laforte & Rochelle Edge, 2009. "Investment Shocks and the Business Cycle: The View from a Policy-Oriented DSGE model," 2009 Meeting Papers, Society for Economic Dynamics 148, Society for Economic Dynamics.
  2. Michael T. Kiley, 2008. "Inflation expectations, uncertainty, the Phillips curve, and monetary policy - comments," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, vol. 53.
  3. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.
  4. Michael T. Kiley, 2010. "Output gaps," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2010-27, Board of Governors of the Federal Reserve System (U.S.).

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