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Joint adjustment of house prices, stock prices and output towards short run equilibrium

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  • Thomas Grandner

    (Department of Economics, Vienna University of Economics & B.A.)

  • Dieter Gstach

    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

A dynamic IS-LM model including stocks and houses as additional assets will be analyzed in this paper. Providing also housing services, a major consumption item for most households, houses create an additional link between the monetary and the real sector of the economy. The adjustment path of output, house prices and stock prices after exogenous policy shocks will be derived within a rational expectation setup. This will show how different reaction patterns of asset prices are related to different elasticities of housing services demand. These general analytical results are contrasted with relevant empirical work, particularly Lastrapes [2002], leading to the identification of plausible elasticity ranges. The particular results for those shed new light upon the ongoing discussion about demand effects from real estate wealth and about determinants of house price fluctuations.

Suggested Citation

  • Thomas Grandner & Dieter Gstach, 2004. "Joint adjustment of house prices, stock prices and output towards short run equilibrium," Department of Economics Working Papers wuwp088, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp088
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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