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News-Driven Housing Booms: Spain Versus Germany

Author

Listed:
  • Guinea Laurentiu

    (Universidad Carlos III de Madrid and ICAE, Madrid, Spain)

  • Puch Luis A.
  • Ruiz Jesús

    (Universidad Complutense de Madrid and ICAE, Madrid, Spain)

Abstract

We investigate how the economy responds to anticipated (news) shocks to future investment decisions. Using structural vector autoregressions (SVARs), we show that news about the future relative price of residential investment explains a high fraction of the variance of output, aggregate investment and residential investment for Spain. In contrast, for Germany it is the news shocks on business structures and equipment that explain a higher fraction of the variance of output, consumption and non-residential investment. We confront the identified shock with other shocks to provide evidence that our structural interpretation is valid. Then, to address our empirical findings, we propose a stylized two-sector model of the willingness to substitute current consumption for future investment in housing, structures or equipment. The model combines a wealth effect driven by the expectation of rising house prices, with a reduced-form friction in labor reallocation. We find that the model calibrated for Spain displays a response to anticipated house price shocks that stimulate residential investment, whereas for Germany those shocks enhance investment in equipment and structures. The results highlight the propagation mechanism of anticipated shocks to future investment, which is consistent with the housing booms in Spain and their absence in Germany. Such a mechanism complements a view relying on a combination of monetary, financial or housing supply and demand, surprise shocks.

Suggested Citation

  • Guinea Laurentiu & Puch Luis A. & Ruiz Jesús, 2023. "News-Driven Housing Booms: Spain Versus Germany," The B.E. Journal of Macroeconomics, De Gruyter, vol. 23(1), pages 95-150, January.
    • Handle: RePEc:bpj:bejmac:v:23:y:2023:i:1:p:95-150:n:13
    DOI: 10.1515/bejm-2021-0116
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    More about this item

    Keywords

    news shocks; investment-specific technical change; housing booms; wealth effects;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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