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

  • Yu Ren
  • Yufei Yuan

    ()

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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

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File URL: http://hdl.handle.net/10.1007/s11146-012-9389-5
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Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 48 (2014)
Issue (Month): 2 (February)
Pages: 323-341

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Handle: RePEc:kap:jrefec:v:48:y:2014:i:2:p:323-341
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102945

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  8. Zvi Hercowitz & Jeffrey C. Campbell, 2005. "The Role of Collateralized Household Debt in Macroeconomic Stabilization," 2005 Meeting Papers 120, Society for Economic Dynamics.
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  19. Paul Beaudry & Bernd Lucke, 2010. "Letting Different Views about Business Cycles Compete," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 413-455 National Bureau of Economic Research, Inc.
  20. Jonas D. M. Fisher, 2007. "Why Does Household Investment Lead Business Investment over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 115, pages 141-168.
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  23. Black, Jane & de Meza, David & Jeffreys, David, 1996. "House Price, the Supply of Collateral and the Enterprise Economy," Economic Journal, Royal Economic Society, vol. 106(434), pages 60-75, January.
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