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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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  18. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  19. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  20. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  21. Paul Gomme & Finn Kydland & Peter Rupert, 2000. "Home production meets time-to-build," Working Paper 0007R, Federal Reserve Bank of Cleveland.
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