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Why the Housing Sector Leads the Whole Economy: The Importance of Collateral Constraints and News Shocks

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  • Yu Ren
  • Yufei Yuan

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Abstract

This paper establishes a dynamic stochastic partial equilibrium model for explaining residential investment dynamics in the United States, focusing on the distinctive cyclical features of residential investment in that it leads the whole economy. This paper is different from the existing literature by adding three new features to the model: news shocks, collateral constraints and agent heterogeneity. The partial equilibrium analysis where interest rates are exogenously fixed shows that these assumptions are essential to generating the dynamic pattern in which residential investment leads consumption and GDP. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Yu Ren & Yufei Yuan, 2014. "Why the Housing Sector Leads the Whole Economy: The Importance of Collateral Constraints and News Shocks," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 323-341, February.
  • Handle: RePEc:kap:jrefec:v:48:y:2014:i:2:p:323-341
    DOI: 10.1007/s11146-012-9389-5
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    References listed on IDEAS

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    Cited by:

    1. Hashmat Khan & Jean-François Rouillard, 2016. "Household Borrowing Constraints and Residential Investment Dynamics," Carleton Economic Papers 16-07, Carleton University, Department of Economics.

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