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Housing Dynamics

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  • Joseph Gyourko

    (University of Pennsylvania)

  • Eduardo Morales

    (Harvard University)

  • Charles Nathanson

    (Harvard University)

  • Edward Glaeser

    (Harvard University)

Abstract

The volatility of house prices and construction levels is high. Both exhibit strong positive serial correlations at 1-year frequencies, Prices show strong mean reversion over 5-year periods. This paper asks whether these facts can be reconciled in a dynamic housing model, where in the tradition of Rosen and Roback, prices reflect the value of access to an area's income and amenities. We calibrate a dynamic spatial equilibrium model and find that it can fit some, but not all, the key empirical features of America's housing markets. We learn as much from the model's failure as from its successes, as they point out where future research needs to focus and where a fully rational framework cannot explain the key stylized facts.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 307.

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Date of creation: 2011
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Handle: RePEc:red:sed011:307

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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  1. George J. Borjas, 2003. "The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market," NBER Working Papers 9755, National Bureau of Economic Research, Inc.
  2. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August.
  3. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-62, April.
  4. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-73, April.
  5. Campbell, John, 2000. "Asset Pricing at the Millennium," Scholarly Articles 3294737, Harvard University Department of Economics.
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  10. Margaret Hwang Smith & Gary Smith, 2006. "Bubble, Bubble, Where's the Housing Bubble?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 1-68.
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  12. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
  13. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2005. "Why Have Housing Prices Gone Up?," American Economic Review, American Economic Association, vol. 95(2), pages 329-333, May.
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  16. Joseph Gyourko & Albert Saiz, 2006. "Construction Costs And The Supply Of Housing Structure," Journal of Regional Science, Wiley Blackwell, vol. 46(4), pages 661-680.
  17. Joseph Tracy & Henry Schneider & Sewin Chan, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Apr).
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  23. Baker Dean, 2006. "The Menace of an Unchecked Housing Bubble," The Economists' Voice, De Gruyter, vol. 3(4), pages 1-5, March.
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